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Morning Bell 6 February

Bell Direct
February 6, 2024

Wall Street started the week lower across the key indices as treasury yields spiked on investor concerns that the Federal Reserve may not cut interest rates as much as expected and on the back of weak corporate results released dampening investor sentiment.

The Dow Jones fell 0.71%, while the S&P500 lost 0.32% and the tech-heavy Nasdaq ended the day down 0.2%. Fed Chair Jerome Powell reiterated last week at the FOMC policy meeting that a rate cut in March was unlikely, as a fresh batch of strong economic data supported the need to maintain rates higher for longer to ensure inflation doesn’t rebound.

McDonald’s fell 4% on Monday after releasing a mixed result for Q4 including slower sales which the fast-food giant has attributed to rising tensions in the Middle East.

In Europe overnight markets closed slightly lower across the board as investors digested the idea of higher rates for longer both out of the US and across Europe. The STOXX600 fell 0.14% to start the week lower, Germany’s DAX fell 0.08%, the French CAC lost 0.03%, and, in the UK, the FTSE100 dropped 0.04%.

The Asia markets also started the week mixed, where Chinese stocks rebounded from a 5-year low as the People’s Bank of China stimulus came into effect yesterday. Hong Kong’s Hang Seng ended the day flat, Japan’s Nikkei rose 0.54% and China’s CSI climbed 0.65% on Monday.

The local market started the first trading day of the new week almost 1% lower, as materials and utilities stocks weighed on the key index while every sector aside from healthcare ended the day lower.

The sell-off to start the week was mostly attributed to investors profit taking after the ASX soared to a record high close on Friday last week, and as investors await the RBA rate decision announcement today where it is widely expected that Australia’s central bank will maintain the current rate of 4.35% for another month as inflation remains above the target 2-3% range. The latest CPI report released last week indicated Australia’s quarterly inflation is easing faster than expected to a two year low of 4.1% in the 12-months to December.

In M&A news yesterday West Australian gold miner Red 5 announced it is merging with Silver Lake Resources in a deal worth $2.2bn to create a gold mining powerhouse. Under the deal, Red 5 will retain 51.7% of the merged company while Silver Lake will hold the remaining 48.3%. Red 5 shares rallied on the news while Silver Lake Resources fell over 4% on Monday.

What to watch today:

  • Ahead of the local trading session here in Australia the SPI futures are expecting the ASX to open Tuesday’s session 0.3% lower on the back of global market turbulence overnight.
  • On the commodities front this morning, oil is trading 1.03% higher at US$72.99/barrel, gold is down 0.66% at US$2025/ounce and iron ore is down 2.25% at US$130.50/tonne.
  • AU$1.00 is buying US$0.65, 96.41 Japanese Yen, 51.95 British Pence and NZ$1.07.

Trading Ideas:

  • Bell Potter has increased the rating on LGI Limited (ASX:LGI) from a hold to a buy and raised the price target from $2.32 to $2.55 following the company announcing a long-term gas management agreement with Bingo Industries and its related entity, Dial A Dump, covering Bingo’s Eastern Creek Landfill site in Western Sydney. The initial term of the agreement is 15-years with two options for 5-year extensions. Bell Potter believes the contract further validates LGI’s position as an industry leader in biogas recovery.
  • And Bell Potter has increased the rating on Inghams (ASX:ING) from a hold to a buy and raised the price target from $3.95 to $4.90 following emerging tailwinds for the leading poultry producer in Australia including grain and soymeal price declines, increased production and pricing of poultry having peaked.

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