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Morning Bell 23 May

Grady Wulff
May 23, 2023

It was a mixed session on Wall Street overnight as investors focus ahead to the pivotal debt ceiling negotiation talks at 5:30pm on Monday evening in the U.S. where President Biden will meet again with house speaker Kevin McCarthy to continue debt ceiling talks with just 10-days left until the earliest date that Treasury Secretary Janet Yellen said the US could default. The S&P500 rose 0.02% on Monday, the Dow Jones fell 0.42% and the tech-heavy Nasdaq rose 0.5%. Reporting season is coming to an end, but investors are still awaiting the release of first quarter earnings results out of Zoom Video, and Lowe’s. The US has also agreed to back the development of Australia’s critical minerals industry after the two country’s agreed to coordinate policies and investment to support the industry’s growth. This is a major deal for Australia’s local miners and producers as Australia supplies around half of the world’s lithium and other minerals like rare earths.

Over in Europe, markets closed mixed as investors in the region await key signs of progress toward raising the U.S. debt ceiling to avoid the catastrophic potential outcome of defaulting on debts. In Greece, the Athens General Composite Index soared 7% on Monday after the New Democracy, ruling Conservative Party, secured a firm lead in the elections on Sunday. Germany’s DAX fell 0.32% on Monday after closing at a record high on Friday, while the French CAC fell 0.18% but, in the UK, the FTSE100 rose 0.18%.

The local market closed the first trading session of the week 0.22% lower, weighed down by investors selling out of real estate and communication services stocks, which offset a 1.5% rally for the tech sector. Tyro Payments (ASX:TYR) tanked over 16% on Monday after Potentia Capital walked away from takeover talks with the payments company following Potentia’s completion of due diligence into Tyro. New regulations in the buy now, pay later sector also sent shockwaves through the share prices of key players like Zip Co (ASX:ZIP) and Block (ASX:SQ2), parent company of Afterpay. The regulations set to be imposed on the BNPL providers will include tougher requirements for credit checking to avoid consumers taking on unaffordable debt through use of the pay later options.

What to watch today:

  • Ahead of the local trading session here in Australia, the SPI futures are expecting the local market to open 0.07% higher.
  • On the commodities front this morning, oil continued its decline into a third day on Monday as investors continue to assess the stop-start negotiations underway in the US over the debt ceiling crisis. Investors are concerned about the impact the pending debt ceiling outcome will have on energy demand from China’s lacklustre economic recovery, in addition to the possibility of a recession in the US. Oil has rebounded this morning to trade 0.64% higher at US$72.15/barrel. Gold is trading 0.22% lower at US$1972.14/ounce and iron ore is down 1.81% at US$108.50/tonne.
  • AU$1.00 is buying US$0.67, 92.16 Japanese Yen, 0.53 British Pence and NZ$1.06.
  • Stocks trading ex-dividend today include Amcor (ASX:AMC) and Elders (ASX:ELD). 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 increased the rating on AFT Pharma (ASX:AFP) from a hold to a buy and have increased the price target on the drug development company from $3.16 to $4 following the release of the company’s FY23 results including a 27% increase in product sales revenue to $156.5 million and a 180 basis points increase in gross profit margin to 46.3%. The company also has a short-term catalyst in October 2023 in the upcoming approval date for Maxigesic IV (4) in the US where commercial launch triggers a $6 million milestone.
  • Trading Central has identified a bearish signal on Magellan Financial Group (ASX:MFG) following the formation of a pattern over a period of 49-days which is roughly the same amount of time the share price may fall from the close of $8.25 to the range of $6.80 to $7.10 according to standard principles of technical analysis.

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