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Morning Bell 18 October

Grady Wulff
October 18, 2023

Over in the US on Tuesday, Wall Street closed mixed after a volatile session as rising bond yields and corporate earnings results weigh on investor sentiment. The S&P500 closed just 0.01% lower after trading down all session, while the tech-heavy Nasdaq lost 0.25% and the Dow Jones rose just 0.04%. The 10-year US Treasury yield topped 4.8% following US retail sales data coming in at a rise of 0.8% which was higher than expected, indicating consumers are still spending in the high interest rate environment. The Bank of America shares rose 2.4% on Tuesday after posting better-than-expected results while Nvidia fell 4.7% after the US Department of Commerce said it plans to ban the export of more AI chips to China.

In Europe on Tuesday, markets closed mostly flat following the release of hotter-than-expected US retail sales data which reignited fears of further monetary tightening out of the world’s largest economy and subsequent flow-on impacts into the European region. The STOXX600 fell 0.1%, Germany’s DAX rose just 0.09%, the French CAC added 0.11% and, in the UK, the FTSE100 climbed 0.58%.

A morning rally locally was dampened in afternoon trade leading to the ASX200 close Tuesday’s session up 0.42% led by a rebound in technology stocks which started the week in negative territory. Healthcare stocks took the biggest hit yesterday with the sector closing down 0.8% while consumer staples and consumer discretionary stocks also closed the day in the red. The tech-rally was driven by strength on the Nasdaq in the US overnight.

The release of the RBA’s latest minutes sparked the sell-off in afternoon trade that saw the strong gains on the local index ease as investors took the minutes as more hawkish than previous months. The consensus of the minutes was focused on the RBA having considered raising the cash rate by 25-basis points at the last meeting before ultimately deciding to leave the rate at 4.1% for a fourth consecutive month.

Health tech company Cochlear fell 0.6% on Tuesday after the company released an update outlining that its full-year profit guidance previously issued didn’t account for the planned $170m acquisition of Oticon Medical, Cochlear’s implant business. The healthcare sector has come under pressure in 2023 as company growth outlook slows post COVID and marginal pressures hurt companies that are wearing the rising costs as opposed to passing costs onto customers.

While Bapcor fell over 12% after the auto parts retailer posted a trading update outlining first quarter performance is below expectations due to slowing sales growth and current margin pressures faced in the high interest rate, rising cost environment.

What to watch today:

  • Ahead of the midweek local trading session here in Australia, the SPI futures are expecting the ASX to open 0.28% higher.
  • On the commodities front this morning, the volatility in the price of oil has continued over the last few sessions amid hopes of a short-period of war between Hamas and Israel pulling against fears of a prolonged and widespread war that escalates to involve major oil producer, Iran. The rising price of oil fuelled Shell shares to hit a record high as investors price in disruption that could impact global oil supply. The price of oil is currently trading down 0.29% at US$86.42/barrel, gold is up 0.06% at US$1920.57/ounce and iron ore is up 0.84% at US$120.50/tonne.
  • Looking at economic data, key Chinese economic data is out today in the form of GDP growth rate data for Q3, industrial production for September and Retail sales data, all of which will give an insight into how the world’s second largest economy is recovering post pandemic and whether further government stimulus is required to reignite growth in the region. UK inflation rate data is also out today with the market expecting a slight decline in inflation to an annual rate of 6.6% in September from 6.7% in August.
  • AU$1.00 is buying US$0.64, 95.27 Japanese Yen, 52 British Pence and NZ$1.08.

Trading Ideas:

  • Bell Potter has decreased the 12-month price target on Janison Education (ASX:JAN) from 65cps to 55cps and maintain a buy rating on the global education technology company following the release of a soft Q1 FY24 update including revenue up 5% YoY while ICAS revenue fell 0.6% YoY impacted by economic headwinds and discontinued unprofitable exams. The company also announced that CEO and Managing Director, David Caspari and Chairman, Michael Hill, will step down.
  • And Trading Central has identified a bullish signal on BHP Group (ASX:BHP) following the formation of a pattern over a period of 95-days which is roughly the same amount of time the share price may rise from the close of $45.57 to the range of $49.50 – $50.40 according to standard principles of technical analysis.

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