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Morning Bell 11 April

Grady Wulff
April 11, 2024

Rising treasury yields on the back of a hotter-than-expected inflation reading for March caused US investors to hit the sell button on equities on Wednesday with the Dow Jones falling 1.09% while the S&P500 lost 0.95% and the Nasdaq closed 0.84% lower.

Key US inflation data out overnight came in higher than economists and markets were expecting at an annual rate of 3.5% in March compared to 3.2% in February and showed acceleration in inflation for a second straight month, indicating inflation in the world’s largest economy remains stickier than first expected. Energy costs and food inflation were two of the key drivers of the inflation rate rise and add support for the Fed to hold rates steady for a little while to come. Markets naturally responded negatively as investors had been holding out hope for rate cuts as soon as June.

The Fed’s latest meeting minutes were also released just an hour ago where investor sentiment was dampened further by Fed officials’ concerns that inflation isn’t falling fast enough to the 2% target. US producer price index data is also out today with the market expecting a drop in the PPI from the 0.6% rise reported in February from January this year.

In Europe on Wednesday, markets closed mixed in the region as investors digested the inflation reading out of the US. The STOXX600 closed 0.12% higher, Germany’s DAX rose 0.11%, the French CAC fell 0.05% and, in the UK, the FTSE100 ended the day up 0.33%.

Across the Asia markets on Wednesday, markets closed mostly lower as Japan’s corporate inflation rate rose to 0.8%, which signals a third straight month of increase. Japan’s Nikkei fell 0.5% on Wednesday, Hong Kong’s Hang Seng rose 1.75%, China’s CSI Index lost 0.81% and South Korea’s Kospi Index closed flat.

China’s all-important inflation data is also out today with the market expecting a decline to 0.4% YoY from 0.7% in February which would suggest that any hopes of China’s material recovery post-pandemic have eased.

Locally, the ASX continued this week’s winning streak into the Wednesday’s session with the key index closing the day up 0.31%, with materials stocks again doing most of the heavy lifting with the sector ending the day up 2.34% amid the rising price of iron ore.

Healthcare stocks also lifted the market on Wednesday as Ansell extended its rally a further 4% on the back of a major US acquisition announcement. Neuren rallied 2.2% and ResMed jumped 2.17% on Wednesday.

Cloud-based call recording software provider Dubber yesterday released first half results, announced a capital raise of $24.06m and shared the news of CEO, Steve McGovern, on alleged misuse of around $36.6m. Dubber shares have been in a trading halt since the investigation into misappropriation of funds came to light on March 1.

What to watch today:

  • Ahead of the local trading session on Thursday the SPI futures are expecting the ASX to open the day down 0.82% tracking Wall Street’s inflation-driven sell-off overnight.
  • On the commodities front this morning, oil has rebounded to trade 1.2% higher at US$86.25/barrel, gold is down 0.82% at US$2334/ounce and iron ore is up 3.32% to trade at US$109/tonne.
  • AU$1.00 is buying US$0.65, 99.51 Japanese Yen, 51.68 British Pence and NZ$1.09.

Trading Ideas:

  • Bell Potter has retained a buy rating on Capricorn Metals (ASX:CMM) and have increased the 12-month price target on the gold miner from $5.95 to $6.15 following the release of a production update at the company’s 100% owned Karlawinda Gold Project. Despite the company lowering its production guidance due to major rainfall impacting operations late in March, the analyst sees Capricorn has high quality operations at the Karlawinda Gold Project, low costs, a strong balance sheet and free cashflow which helps to mitigate the company’s single mine risk.
  • Trading Central has identified a bullish signal on Yancoal Australia (ASX:YAN) following the formation of a pattern over a period of 21 days which is roughly the same amount of time the share price may rise from the close of $5.63 to the range of $5.94 to $6.02 according to standard principles of technical analysis.

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