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Morning Bell 31 July

Grady Wulff
July 31, 2023

Wall Street closed higher on Friday and notched out gains across the key indices for the week as investors welcomed favourable inflation data in the form of the personal consumption expenditures price index. The data is a key driver of the Fed’s interest rate decisions and gained just 0.2% month-on-month, the same reading as the prior month and well below the anticipated 4.2% rise.

Stronger than expected GDP in the US and a better-than-expected earnings season so far in the US has analysts’ believing markets could jump to new highs. On Friday, the Dow Jones rose 0.50%, the S&P500 added 0.99% and the Nasdaq lifted 1.9%.

Proctor & Gamble shares rose 3% on Friday after the company posted earnings and revenue that beat analysts’ expectations for the most recent quarter, while Intel jumped 6.6% on Friday as investors welcomed the tech company’s return to profitability.

Over in Europe, markets closed mixed as Germany’s economic growth stagnated in the second quarter indicating the economy is stuck between stagflation and a recession. The STOXX600 fell 0.2% on Friday while Germany’s DAX rose 0.4%, the French CAC added 0.15% and, in the UK, the FTSE100 lifted 0.02%.

The bank of Japan maintained its negative interest rate on Friday but announced it would allow “greater flexibility” in its targeted range for 10-year Japanese government bond yields which some analysts are taking as a sign of potential policy shift to come. The strict yield curve policy will now allow + and – 0.5% movements and the BoJ will now offer to purchase 10-year JGBs at 1% through fixed rate operations.

Locally on Friday the key index fell 0.7% driven by the US sell-off on Thursday, however for the week the ASX200 posted a 1.23% gain. The REIT sector took the biggest hit locally on Friday while consumer discretionary stocks also fell 0.88% following the release of retail sales data for June. The data showed the full impact the RBA interest rate hikes are having on consumer spend with the reading coming in at a decline of 0.8% for the month of June, down from a 0.8% rise in May and below what consensus was expecting of a flat reading on the prior month.

What to watch today:

  • Ahead of the local trading session here in Australia, the SPI futures are anticipating the local index to open the first trading session of the new week up 0.26%.
  • On the commodities front this morning, oil is trading 0.11% lower at US$80.49/barrel, gold is up 0.76% at US$1959.85/ounce, iron ore is down 0.87% at US$114.50/tonne.
  • AU$1.00 is buying US$0.67, 93.77 Japanese Yen, 51.63 British Pence and NZ$1.08.

Trading Ideas:

  • Bell Potter has increased the 12-month price target on Capricorn Metals (ASX:CMM) to $5.19 from $4.95 and maintain a buy rating on the gold exploration and development company following the release of the company’s June quarter update including Capricorn Metals producing 120,014 ounces of gold at its Karlawinda Gold Project over FY23 at all-in-sustaining-costs of $1208/ounce which fell slightly short of production expectations by Bell Potter analysts’ however the AISC were below BP expectations. The company also boasts some of the lowest costs in the sector and consistently generates strong cash margins.
  • And Trading Central has identified a bearish signal on Regis Resources (ASX:RRL) following the formation of a pattern over a period of 72-days which is roughly the same amount of time the share price may fall from the close of $1.71 to the range of $1.32 to $1.42 according to standard principles of technical analysis.

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