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Morning Bell 29 April

Bell Direct
April 29, 2024

Wall St returned to rally mode on Friday following the release of strong earnings results and fresh US inflation data. The S&P500 and Nasdaq both posted their best week since November and closed up 1.02% and 2.03% respectively on Friday while the Dow Jones added 0.4% ended Friday’s session up 0.4%. Alphabet was a key driver of the rally on Friday with the stock lifting 10% after the tech juggernaut posted better-than-expected first quarter earnings while Microsoft added nearly 2% on the release of strong third-quarter results driven by an uptick in cloud growth.

Investors also digested March’s core personal consumption expenditures index reading which came at a rise of 2.8% which was ahead of expectations of 2.7%.

In Europe on Friday, strong earnings results out in the region also prompted investors to rally around equities to close the week on a high with the STOXX600 rising 1.2% while Germany’s DAX added 1.36%, the French CAC rose 0.89% and in the UK, the FTSE100 gained 0.75% on Friday.

The global rally outside of Australia on Frida y extended to the Asia markets, rebounding from the recent sell-off in the region, led by Japan’s Nikkei climbing 0.81% on the BOJ maintaining interest rates at 0%-01% for another month as expected and Tokyo’s headline inflation coming in at 1.8%, easing from the 2.6% reported in March.

The local market ended Friday’s session down 1.4%, as hotter-than-expected inflation data released on Wednesday continues to push bond yields higher and dampens investor hopes of interest rate cuts out of the RBA in the near future. When interest rate outlook is uncertain, investors tend to flock to investments that offer safer returns like government bonds which is why the Australian 10-year bond jumped 19 basis points to 4.59% and the 1-year bond jumped 13 basis points to 4.36% which tops the current cash rate of 4.35%.
Investors locally also took strong lead from Wall Street Thursday after weaker-than-expected GDP data was released, indicating the high interest rate environment is dampening growth for the world’s largest economy.

Every sector locally ended Friday’s session in the red led by the rate sensitive real estate sector which tumbled over 2% as companies in the REIT space wear the full costs of the high interest rate environment unlike other sectors that can pass on the rising costs associated with interest rate hikes. The materials sector was also weighed down on Friday by BHP falling over 4.4% after the mining giant announced a takeover bid worth almost $60m for copper miner Anglo American, which was subsequently rejected by Anglo American this afternoon on the grounds of materially undervaluing the company.

Sleep apnoea device specialist ResMed jumped 9.6% on Friday after reporting impressive Q3 results including revenue up 7% to US$1.2bn, gross margin up 260 basis points to 57.9% which beat consensus expectations and income from operations increased 25% to US$374.6m. ResMed also issued a 48cps quarterly cash dividend.

What to watch today:

  • Ahead of the first trading session of the new week, the SPI futures are expecting the ASX to open Monday up 0.32% tracking Wall Street’s rally on Friday.
  • On the commodities front this morning, oil is trading 0.05% lower at US$83.72/barrel, gold is up 0.31% at US$2337/ounce and iron ore is up 0.44% at US$110.16/tonne.
  • AU$1.00 is buying US$0.65, 103.19 Japanese Yen, 52.32 British Pence and NZ$1.10.

Trading Ideas:

  • Bell Potter has increased the 12-month price target on Regis Resources (ASX:REG) from $2.60 to $2.80 and maintain a buy rating on the gold miner following the release of the company’s March quarter update which came in below Bell Potter expectations as a result of rainfall impact on operations, however, the price target increase is due to gold price tailwinds and the company completing its first full quarter of unhedged gold sales.
  • And Trading Central has identified a bullish signal on Champion Iron (ASX:CIA) following the formation of a pattern over a period of 16-days which is roughly the same amount of time the share price may rise from the close of $7.12 to the range of $7.55 to $7.65 according to standard principles of technical analysis.

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