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Morning Bell 15 November

Grady Wulff
November 15, 2023

Wall Street’s recent rally extended into Tuesday’s session as investors welcomed the latest inflation data that came in at an annual rate of 3.2% which was below economists’ expectations of 3.3% and raises investors’ hopes that the Fed’s rate hike campaign is coming to an end. The Dow Jones rose 1.7%, the S&P500 added 2.1% and the tech-heavy Nasdaq jumped 2.5%. The 10-year US Treasury Yield also tumbled below 4.5% following the release of the soft inflation report.

Banks including Bank of America and Wells Fargo rallied on hopes that the US economy could avoid a recession all together.

Home Depot shares lifted nearly 6% on Tuesday following the release of better-than-expected third-quarter earnings results.

Over in Europe, markets also welcomed the cooler-than-expected US inflation data, as markets in the region closed higher on Tuesday. The STOXX600 rose 1.4%, led by retail stocks rising 3.1% while oil and gas stocks fell 0.2%. Germany’s DAX rose 1.76% on Tuesday, the French CAC added 1.4% and, in the UK, the FTSE100 lifted 0.2%.

Locally yesterday, ASX closed 0.83% higher on Tuesday, despite the release of Westpac consumer confidence data for November and NAB business confidence data for October both showing declines against economists’ expectations of respective rises. NAB Business confidence data for October fell a further 2 points despite business conditions edging up, driven by higher sales and profitability while employment eased. This reading indicates businesses remain cautious despite the resilience we are seeing in business conditions.

Westpac consumer confidence for November also fell 2.6% in data out yesterday to 79.9 points indicating consumers are pessimistic following the RBA’s latest rate hike for November placing additional financial pressures on Aussie households.

Energy stocks did most of the heavy lifting on Tuesday with the sector closing 2.54% higher, boosted by Beach Energy rising 5.6%.

Commonwealth Bank of Australia rallied just shy of 1% on Tuesday after Australia’s largest bank released a first quarter trading update including unaudited statutory NPAT up 1% on the PCP to $2.5bn. Operating income was flat though for CBA and operating expenses were up 3%, reflecting higher costs from wage inflation and higher amortisation.

Big bank earnings over the last weeks have indicated strength and resilience by the big four in FY23 and the start of FY24, with revenues boosted by the rising interest rates and the peak of respective Net Interest Margins. Multiple signs have suggested though that future revenue and earnings are likely to ease including slowing mortgage and business credit growth across the board, rising operating costs due to inflation, higher switching by customers between all accessible banks both big and small, and the net interest margin peaking during FY23.

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 up 1.35% following the strong rally on global markets overnight.
  • On the commodities front this morning, oil is trading 0.74% higher at US$78.83/barrel, gold is up 0.85% at US$1962.52/ounce and iron ore is flat at US$130.50/tonne.
  • AU$1.00 is buying US$0.65, 97.87 Japanese Yen, 52.03 British Pence and NZ$1.08.

Trading Ideas:

  • Bell Potter has decreased the 12-month price target on Chalice Mining (ASX:CHN) from $7.10 to $5.40 and maintain a speculative buy rating on the exploration company following the release of an update from ongoing hydrometallurgical test work programs the company has been undertaking for its 100%-owned Gonneville deposit. The results demonstrate the potential for higher recoveries to be achieved compared with those assumed in the scoping study released in August this year. The decline in price target is due to lower palladium and platinum price forecast given the palladium spot price is currently at a +5 year low.
  • And Trading Central has identified a bullish signal on Grange Resources (ASX:GRR) following the formation of a pattern over a period of 57-days which is roughly the same amount of time the share price may rise from the close of $0.52 to the range of $0.59-$0.61 according to standard principles of technical analysis.

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