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Morning Bell 4 October

Bell Direct
October 4, 2023

In New York on Tuesday, rising treasury yields and unfavourable economic data continued to pressure equities with the Dow Jones closing the session down 1.29% in its worst session since March, while the S&P500 and Nasdaq fell 1.37% and 1.87% respectively. Tuesday’s 1.3% fall for the Dow Jones tipped the key index into the red for 2023, with the index down 0.4% year to date at the closing bell. The 10-year Treasury yield hit 4.787% on Tuesday, reaching its highest level since 2007 as traders assess the possibility of further monetary tightening by the Federal Reserve. Yields spiked and equities fell on Tuesday following the release of the August job openings survey which signalled 9.6 million open roles in the month, which was higher than economists were expecting and indicates the labour market in the US remains tight.

In Europe, markets closed lower on Tuesday as investors digested unfavourable economic data out in the region indicating inflation remains stubbornly high. Italian new car registrations data for September came in at a rise of 22.8% from a rise of 12% in August in a sign consumers are still spending in the region despite rising interest rates. The STOXX600 fell 1.1% on Tuesday while Germany’s DAX lost 1.06%, the French CAC fell 1.01% and, in the UK, the FTSE100 shed 0.54%.

The local market fell again on Tuesday as global markets continue taking lead from the US whereby sentiment is currently dampened by the prospect of a potential government shutdown. The ASX200 closed Tuesday’s session down 1.28% to a near 6-month low with every sector ending the session lower aside from healthcare. Energy stocks took the biggest hit yesterday as the sector closed down 3.7% on the sliding price of oil. Rising bond yields especially in the US also continue to sway investors away from the higher risk equities market in favour of less risky returns through bonds.

The RBA held the nation’s cash rate at 4.1% for a fourth straight month in the October meeting yesterday and the first with Michele Bullock as Governor of the RBA. As with the last few months of holds though, the commentary surrounding the rate pause decision focused on the possible need for further tightening in the future should inflation continue to show signs of remaining high. Australia’s wage price index, consumer price index, housing and rent, energy and producer price index all continue to respectively rise which are the key factors of inflation in Australia while unemployment also remains at 3.7%. CBA, Westpac and ANZ each believe the nation’s cash rate has peaked at 4.1% with cuts to follow next year, while NAB is the outlier, believing the RBA has one more rate hike in store in November or December.

Computershare rallied 1% yesterday to buck the sell-off trend after the tech giant said it was selling its US mortgages services business for $720m to NYSE listed asset manager, Rithm Capital, while the big iron ore miners took a hit yesterday amid weakening iron ore price outlook.

New dwellings data in Australia released yesterday also surprised the market with a 7% rise in August from a 7.4% decline in July, reflecting a pickup in the demand for new houses despite the high interest rate, high cost-of-living environment. Sky high building costs and higher borrowing costs have driven the cost of new builds up at the same time mortgages have become more expensive to service for consumers. The recent moderation in building costs may be a driver of the uptick in new dwellings in August, however with the cash rate expected to remain higher for longer, we may see another decline in new dwellings in the September data.

What to watch today:

  • Ahead of the local trading session here in Australia the SPI futures are anticipating the ASX to open the midweek session down 0.5%.
  • On the commodities front this morning, oil is trading 0.75% higher at US$89.50/barrel, gold is down 0.14% at US$1824/ounce and iron ore is flat at US$119.50/tonne.
  • AU$1.00 is buying US$0.63, 93.88 Japanese Yen, 52.42 British Pence and NZ$1.07.
  • Stocks trading ex-dividend today include Ridley Corporation, and KMD Brands. 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.

Trading Ideas:

  • Bell Potter has decreased the 12-month price target on Avita Medical (ASX:AVH) from $7.45 to $6.85 and maintain a speculative buy rating on the medical tech company after the FDA issued a ‘Substantive Information Request’ in relation to the pre-market approval supplement application for Avita’s RECELL GO product. The most substantive request relates to additional statistical analysis for cell phenotyping with RECELL GO i.e. how many and what type of cells are available using in a sample prepared with RECELL GO vs the legacy Recell Kit.
  • And Trading Central has identified a bullish signal on Beacon Lighting (ASX:BLX) following the formation of a pattern over a period of 78-days which is roughly the same amount of time the share price may rise from the close of $1.90 to the range of $2.40 to $2.55 according to standard principles of technical analysis.

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