3 things ASX investors should watch this week

August is a crucial month for ASX shares, so investors need to pay attention.

Helpfully, eToro market analyst Josh Gilbert has picked out the three most critical developments to keep an eye on this week:

1. Reporting season: low expectations

The August reporting season is well underway, but Gilbert warns that the market is skittish right now.

"Reporting season will be the next catalyst to tallying three months of gains for the local market," he said.

"But given the low expectations, there are downside risks."

There are some massive S&P/ASX 200 Index (ASX: XJO) stalwarts revealing their numbers in the coming days, such as Commonwealth Bank of Australia (ASX: CBA), Computershare Ltd (ASX: CPU), Newcrest Mining Ltd (ASX: NCM), AGL Energy Limited (ASX: AGL) and REA Group Ltd (ASX: REA).

"AGL Energy will be a name to watch this week after revising its FY23 and FY24 guidance last month," said Gilbert.

"Although the good news is already likely baked in, keep an eye out for an upside to EBITDA and, especially, on guidance for FY24." 

Last time, CommBank's record earnings weren't enough to satisfy the market, which sent the share price plummeting.

"A peak in net interest margins and slowing loan growth… will be the focus this time around, and investors will be hoping for some optimism, with shares down 8% in the last six months."

According to Gilbert, the glass-half-full view of the August reporting season could be that "low expectations can sometimes leave room for upside surprises".

2. US inflation 

Gilbert noted that, with headline inflation falling significantly, financial markets have priced in just a 17.5% chance of a September interest rate rise in the United States.

"This week's CPI reading will be crucial in confirming this," he said.

"Further progress in core inflation will be the golden ticket investors are looking for to draw a line in the sand on the Fed's hiking cycle."

Gilbert reported that Bloomberg currently estimates headline inflation to rise from 3% to 3.2%, and core inflation to come down from 4.8% to 4.7%. 

"There may be some worry about a pickup in headline inflation, given the 15% jump in oil prices over the last three months, but investors may be more focused on any declines in core inflation."

3. China inflation

While the world's biggest economy is fighting high inflation, the second largest is struggling to keep deflation at bay.

Gilbert is predicting this week's numbers to show China has not succeeded.

"Manufacturing activity last month fell for the fourth straight month, and cautious local consumers, anticipating better deals due to falling prices, have slowed down spending, reinforcing deflationary pressures."

The projected consumer price index change of -0.4% could force the Chinese government to finally take some radical action.

"Officials have hinted at additional support in recent weeks but with no material action."

"The worry for investors is that the effect of deflation in the world's second-largest economy has global repercussions."

These flow-on effects include Australian resources companies, which heavily depend on Chinese demand.

"Unless more meaningful support is rolled out soon, fear is likely to grow amongst investors that the economy will continue to stagnate."