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Morning Bell 28 August

Grady Wulff
August 28, 2023

Wall Street closed higher on Friday as investors welcomed comments made by Fed Chair Jerome Powell at the Jackson Hole symposium regarding stronger economic growth than expected.

The Nasdaq advanced almost 1% on Friday while the S&P500 rose 0.7% and the Dow Jones also lifted 0.7%. The Nasdaq and S&P500 snapped three-week losing streaks while the Dow Jones extended its weekly losing run into a second week.

Federal Reserve Chair Jerome Powell showed confidence in the US economy’s resilience in the face of rising interest rates as he cited “especially robust” consumer spending and signs of recovery in the housing market as boosting economic strength. Although no signs were given about the outlook of interest rates, Powell reiterated the central bank’s commitment to ensuring inflation is pulled back down to 2%.

Buy now, pay later company Affirm jumped 30% on Friday after posting stronger-than-expected Q4 results and uplifted guidance. Nordstrom shares on the other hand tumbled 11% on Friday after the department store retailer warned of declining sales and high theft-related losses.

Over in Europe, markets closed mixed on Friday ahead of the European Central Bank President’s speech at the Jackson Hole Symposium in Wyoming over the weekend. On Friday, the STOXX600 fell 0.04%, Germany’s DAX rose 0.07%, the French CAC added 0.21% and, in the UK, the FTSE100 rose 0.07%.

ECB President Christine Lagarde said interest rates in the European Union will need to stay higher for as ‘long as necessary’ to slow the stubbornly high inflation in the region. The European Central Bank is in a sticky position as it has to manage a stagnating economy against high inflation.

Locally on Friday, the ASX200 fell 0.93%, weighed down by the tech sector falling 2.51%, while consumer staples and consumer discretionary stocks were the only to sectors to finish the final trading session of the week in the green. Lovisa rose 6.3% on Friday after the fashion jewellery retailer released strong FY23 results including revenue up 30% to $596.5m and net profit lifting 16.7% to $68.2m. While the results fell short of Bell Potter expectations, investors appeared impressed with the company’s report. Wesfarmers also rallied 3.2% on Friday after also releasing strong FY23 results led by a surge in revenue for Kmart and NPAT up 4.8% in FY23 against a slowing consumer spend environment. Another inclusion for Wesfarmers was the announcement of a 6.1% rise in the full year dividend.

What to watch today:

  • Ahead of the local trading session here in Australia the SPI futures are expecting the ASX to open Monday’s session up 0.28%.
  • On the commodities front this morning, oil is trading 0.57% higher at US$80.29/barrel, gold is down 0.11% at US$1915/ounce and iron ore is up 1.3% at US$117.50/tonne.
  • Stocks trading ex-dividend today include Coronado Global Resources (ASX:CRN), Challenger (ASX:CGF), Domino’s Pizza (ASX:DMP), Santos (ASX:STO) and Aurizon (ASX:AZJ). If you’ve been thinking about these stocks, it might be worth considering buying in today, as stocks trading ex-dividend generally trade lower on the ex-dividend date.
  • Australian preliminary retail sales data for July is out today with consensus expecting a rise of 0.3% for the month, up from a 0.8% fall in June which if the reading comes in-line with or above expectations, we could see a rally for consumer discretionary stocks today as this will indicate Aussie’s are still spending despite the high cost-of-living environment.
  • AU$1.00 is buying US$0.64, 93.84 Japanese Yen, 50.84 British Pence and NZ$1.08.

Trading Ideas:

  • Bell Potter has slightly decreased the price target on Cobram Estate Olives (ASX:CBO) from $1.75 to $1.70 and maintain a buy rating on the specialised olive oil producer and marketer following the release of the company’s FY23 results which came in line with expectations including 31% growth in revenue, and a key highlight was US NPAT of $7.7m which compares to a $0.7m loss in FY22. The outlook provided includes the expectation for sales to remain positive in FY24 both in the US and Australia, sufficient olive oil inventory levels despite lower-than-expected FY23 crop, and US harvest is expected to be materially higher than FY23. The reason for the price target decrease is as Bell Potter does not see the current share price as reflecting the inbuilt value upside of the farming and processing assets, and the inbuilt growth that is likely to emerge in the brand as company owned and third-party oil production lifts.
  • And Trading Central has identified a bearish signal on Ingenia Communities Group (ASX:INA) following the formation of a pattern over a period of 59-days which is roughly the same amount of time the share price may fall from the close of $3.97 to the range of $3.25 to $3.40 according to standard principles of technical analysis.

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