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Morning Bell 15 March

Grady Wulff
March 15, 2023

The local index dipped 1.41% amid the fallout from the SVB and Signature collapses in the US sending shockwaves throughout global markets. Investors fear the collapses are sign of what’s to come in the financial sector, which has caused a sell-off in financial stocks and sparked investors to pile into safe-haven assets like gold. The winning stocks yesterday on the ASX were unsurprisingly led by gold miners including Ramelius Resources (ASX:RMS) adding 5.8%, Perseus Mining (ASX:PRU) jumping 4.43% and Silver Lake Resources (ASX:SLR) adding 3.77%. On the losing end of the market, the stocks that weighed the key index down were led by Lake Resources (ASX:LKE) tumbling 8.5%, Novonix (ASX:NVX) falling 8.46% and BrainChip Holdings (ASX:BRN) losing 8%.

Investors repositioned out of tech stocks and into defensive stocks yesterday, which can be taken as a sign of fears around what’s to come as interest rates continue rising and the cost of funding growth for companies in the technology sector becomes increasingly unaffordable. Investors are also fearful that the collapse of the banks will not play part in the Fed’s interest rate decision next week, with many anticipating a 25-basis point rate hike, while some analysts are even expecting a 50-basis point rate hike to be announced. Consumer and business confidence for March and February respectively were released yesterday, with confidence sliding for both consumers and businesses in the respective months as interest rates continue rising and place increased financial pressure on consumers and businesses alike. Regulators find themselves in a difficult position in the U.S. They need to raise interest rates to curb inflation however, raising interest rates exacerbates the issue facing U.S. banks. US annual inflation data was released overnight for the month of February and came in at 6%, the lowest level since September 2021 and down from 6.4% in January, in a sign the Federal Reserve’s aggressive rate hike stance is taking effect.

Wall Street responded positively to the data with the market breaking the recent red streak to close in the green. The Dow Jones rose 1.06%, the S&P500 added 1.68% and the Nasdaq rose 2.14%.

Over in Europe, markets also closed higher in response to the release of US inflation data. Investors in the region also bought back into the banking sector following days of selling out in response to the SVB collapse. Germany’s DAX rose 1.83, the French CAC added 1.86% and, in the UK, the FTSE100 rose 1.17%.

What to watch today:

  • On the commodities front, oil is trading 3.11% lower at US$72.48/barrel, gold is down 0.33% at US$1907/ounce and iron ore is up almost 2% at US$133/tonne.
  • The Aussie Dollar is buying US$0.67, 89.58 Japanese Yen, 54.84 British Pence and NZ$1.07.
  • Ahead of the local session here in Australia the SPI futures are anticipating the ASX to open almost 1% higher on the back of the global rally overnight.

Trading Ideas:

  • Bell Potter has increased the rating on Neuren Pharmaceuticals (ASX:NEU) from a Hold to a speculative BUY and has sharply increased the price target from $8.60 to $13.67 following the US FDA approving Neuren’s US Partner, Acadia Pharmaceuticals drug Trofinetide for the treatment of Rett syndrome in adult and paediatrics two year of age and older.
  • Bell Potter has maintained its hold rating on Infomedia (ASX:IFM) but has increased its price target from $1.35 to $1.45 amid improving outlook for the leading software solutions provider in the automotive industry. The increase in price target is driven by an expected return to double digit cash EBITDA growth in FY24 and FY25 as well as cost control and margin expansion improving the company’s financial performance.

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