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Morning Bell 18 July

Grady Wulff
July 18, 2023

US equities closed higher on Monday as investor sentiment remains boosted by favourable inflation data released last week alongside some strong second quarter results released at the start of earnings season so far.

The Dow Jones closed higher for a 6th straight session, adding 0.22% at the closing bell on Monday, while the S&P500 rose 0.39% and the tech-heavy Nasdaq added 0.93% boosted by Apple and Tesla rising 1.7% and 3.2% respectively.

While Wall St is expecting a gloomy reporting season, the risk of recession is easing as predicted by Goldman Sachs and a number of economists given recent data out in the US reinforced confidence that the Fed’s aggressive rate hikes will be able to cool inflation without plunging the US into a recession.

Over in Europe, markets closed lower on Monday following the release of China’s GDP data coming in at growth of 6.3% for Q2 which fell short of economists’ expectations and provides a further sign of the weak post-pandemic recovery out of the world’s second largest economy. Earnings season in Europe also ramps up this week with Novartis and Ocado releasing results this week. The STOXX600 fell 0.6% on Monday while Germany’s DAX fell 0.23%, the French CAC lost 1.12% and, in the UK, the FTSE100 fell 0.38%.

Locally yesterday the ASX started the week in negative territory, down 0.06% at the closing bell, weighed down by a sharp selloff in energy stocks, which was slightly offset by a 0.88% rise for the technology sector. Energy stocks were likely sold off amid China’s GDP data coming in weaker than expected which contributed to a 1.75% decline in the price of oil to trade at US$74.10/barrel.

What to watch today:

  • Ahead of the local trading session here in Australia, the SPI futures are anticipating the ASX to open Tuesday’s session down 0.28%.
  • Oil remains at US$74.10/barrel this morning, coal is up 2.85% at US$131.65/tonne, gold is up just 0.01% at US$1955/ounce, and iron ore is up 4% at US$117/tonne.
  • On the economic calendar today, we may see the local markets move following the release of the RBA’s meeting minutes this morning pending how investors interpret the outlook for coming months of rate decisions.
  • US retail sales data for June is also out this evening, with consensus expecting a 0.5% rise for the month which would provide another sign that the US economy remains resilient despite rising interest rates.
  • AU$1.00 is buying US$0.68, 94.56 Japanese Yen, 52.10 British Pence and NZ$1.08.

Trading Ideas:

  • Bell Potter has increased the price target on Neuren (ASX:NEU) from $16.50 to $17 and maintain a buy rating on the pharmaceuticals company following the release of Neuren’s US partner, Acadia Pharmaceuticals Q2 sales of Daybue, which is Neuren’s Trofinetide drug in the US. The report came in at sales of US$21m-$23m and provided guidance for Q3 of US$45m – $55m – a significant beat of analysts’ expectations. The increase in price target is also on the back of Acadia Pharmaceuticals strengthening its licencing agreement with Neuren to a global scale, not just in the US moving forward.
  • And Bell Potter has increased the price target on DroneShield (ASX:DRO) from 40 cps to 45 cps and maintain a buy rating on the defence technology company following the announcement out of DroneShield yesterday that it has won a record US$33m contract with the US government for DroneShield equipment and multi-year services subscriptions.

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