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Morning Bell 19 May

Paulina Peters
May 19, 2022

The local market jumped 1% or 70 points higher yesterday to close at 7,182 points.

Sectors wise, the majority of the industry sectors were in the green, with the materials and tech  sectors rallying the most. Meanwhile, the consumer staples sector declined 1% and the financial sector experienced a bit of pressure with three of the big banks, CBA, WBC and NAB declining.

The best performer was Champion Iron (ASX:CIA) which lifted 5.3% after signing a deal to acquire an iron ore pelletizing facility for $2.7 million. Subject to positive findings, a joint venture may be formed to produce iron ore pellets for sale to third parties, including the feasibility partner. Travel stocks like Corporate Travel Management (ASX:CTD) and Flight Centre (ASX:FLT) performed well, despite no news from either company. What seems to have supported their gains was many international travel stocks taking off, with the rise seemingly spurred by Nasdaq-listed United Airlines Holdings (UAL), who upgraded their guidance. Meanwhile, the worst performers yesterday were PolyNovo (ASX:PNV), Sims (ASX:SGM) and Eagers Automotive (ASX:APE).

The most traded stocks by Bell Direct clients included Fortescue Metals (ASX:FMG), Champion Iron (ASX:CIA) and Sims (ASX:SGM).

Moving to the US, stocks fell sharply, as earnings from big retailers Target and Walmart renewed fears of rising inflation. Target shares slumped 25% after its first-quarter earnings were much lower than estimated due to higher fuel and compensation costs. And Walmart, who posted earnings on Tuesday also posted earnings that fell short of expectations, citing higher fuel and labour costs. This saw the Dow Jones post its biggest loss since 2020, falling over 1,100 points. The S&P500 dropped over 4%, its worst drop since June 2020 and the tech-heavy Nasdaq index slipped 4.7%.

What to watch today:

  • Following the sell-off in the US, the SPI futures are suggesting that our local market is set to open 1.8% lower this morning.
  • Reporting wise, both Aristocrat Leisure (ASX:ALL) and Nufarm (ASX:NUF) will release their half-year results. We’ll also hear from Webjet (ASX:WEB). The travel company will share its full-year results. So, keep watch of those three stocks.
  • Economic news wise, all eyes will be on the unemployment rate for April that will be announced at 11:30am AEST. Consensus forecasts suggest the Aussie economy may have added between 25,000-30,000 jobs last month, and if that data comes in as expected, the nation’s official unemployment rate could drop to 3.9%, setting a multi-decade low in the process.
  • Moving to commodities:
    • The oil price dropped 2% to US$109 a barrel, after government data showed US refiners had ramped up output, which eased worries of a supply crunch.
    • The gold price lifted slightly, as a slide in US Treasury yields helped offset pressure from a firmer dollar.
    • Other metals like silver, copper and platinum all declined between 1-2%.
    • The spot iron ore price trading about 1.6% lower to US$125 a tonne.
  • Stocks going ex-dividend today include Westpac (ASX:WBC), Pendal Group (ASX:PDL) and Virgin Money UK (ASX:VUK). This often results in the company’s share price falling, as investors take their profits.
  • And finally, Adbri (ASX:ABC), Gold Road Resources (ASX:GOR) and Woodside Petroleum (ASX:WPL) are holding their AGMs today.

Trading Ideas:

  • Bell Potter have maintained its Buy rating on Eagers Automotive (ASX:APE) albeit with a reduced price target from $17.25 to $15.50. APE released a trading update and provided first-half 2022 guidance, which was in line with Bell Potter’s expectations. The company noted that demand for new vehicles continues to materially exceed supply and as a result the new car order book has increased by more than 25% since the end of December last year. At its current share price of $11.50 this implies about 35% share price growth in a year.
  • Trading Central has a bearish signal on furniture business, Nick Scali (ASX:NCK) indicating that the stock price may fall from the close of $9.25 to the range of $7.20 – $7.60 in the next 6 days according to standard principals of technical analysis.

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