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Morning Bell 18 January

Bell Direct
January 18, 2024

Rising Treasury Yields and uncertainty around the Fed’s rate cut outlook dampened investor sentiment on Wednesday, extending the red run across the key indices for the week. The Dow Jones fell 0.2%, while the S&P500 and Nasdaq declined 0.5% and 0.6% respectively on Wednesday.

Treasury yields have been rising over the last few sessions following key Federal Reserve member speeches that warned the easing of monetary policy may come slower than investors first expected. This prompted investors to flee equities in favour of bonds as a safer return on investment in the current market environment.

Stronger than expected retail sales out of the US boosted some retail stocks on Wednesday indicating consumers are still spending despite the high interest rate and tough cost-of-living environment in the US. Retail sales in the world’s largest economy rose 0.6% in December, a rise from 0.3% in November and above consensus expectations of a flat reading month-on-month.

European markets closed the midweek session lower, extending on the global red run this week, as key inflation readings and World Economic Forum updates heightened investor concerns over the rate outlook in the region. The STOXX600 fell 1.1% as all sectors ended the day in the red led by mining stocks tumbling over 2.1%. Germany’s DAX closed 0.84% lower, the French CAC lost 1.07% and, in the UK, the FTSE100 fell 1.5% on Wednesday after inflation in the UK rose unexpectedly to 4% year-on-year in December’s reading.

Locally on Wednesday, the Aussie market extended its red run into the midweek session, partly weighed on by global markets overnight on Tuesday, weak economic data out of China also weighed on the local market, and energy and materials stocks dragged the ASX lower on Wednesday. The energy sector sell-off was driven by the sliding price of oil yesterday amid escalating tensions in the Red Sea, however, we have seen a recovery in the price of oil this morning as a strong USD counteracts the Red Sea threat on the commodity.

Gold miners took a hit on Wednesday amid the sliding price of the precious commodity, which saw Newmont fall 5.1%, while Evolution Mining tumbled 17% on a combination of the falling price of gold and a second quarter update out of the company that indicated gold production fell short of expectations.

What to watch today:

  • Ahead of Thursday’s trading session here in Australia the SPI futures are expecting the ASX to open 0.27% lower, extended on the negative global run this week. The pullback in global equities this year so far wasn’t unexpected as we saw markets both at home and overseas hover near all-time highs to end 2023. The pullback is primarily due to central banks around the world pushing back rate cut timeframes which is prompting investors to reposition in safer returns and diversified exposure through bonds and equities that perform better in the higher interest rate environment.
  • On the commodities front this morning, oil is trading 0.6% higher at US$72.84/barrel, gold is down 1.06% at US$2006.10/ounce and iron ore is down 0.38% at US$130.50/tonne.
  • AU$1.00 is buying US$0.65, 97.02 Japanese Yen, 52.14 British Pence and NZ$1.07.

Trading Ideas:

  • Bell Potter has maintained a buy rating on Integrated Research (ASX:IRI) and have slightly upgraded the price target on the leading global provider of experience management solutions from $0.60 to $0.66 following the company releasing a first half trading update including the company’s statutory revenue and EBITDA expectations coming in above Bell Potter expectations and the maintenance of no debt and a strong cash balance by the company throughout the first half.
  • And Trading Central has identified a bullish signal on Eagers Automotive (ASX:APE) following the formation of a pattern over a period of 88-days which is roughly the same amount time the share price may rise from the close of $14.37 to the range of $16.60 to $17.10 according to standard principles of technical analysis.

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