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Morning Bell 23 October

Grady Wulff
October 23, 2023

Rising bond yields sparked a sell-off on Wall Street on Friday as investors remain concerned about the broader state of the U.S. and global economies. The yield on the benchmark 10-year treasury note topped 5% for the first time in 16-years on Friday which offers investors a safer return on investment than the current volatility of equity markets in the U.S.

The Dow Jones fell 0.86% on Friday while the S&P500 lost 1.26% and the tech-heavy Nasdaq shed 1.53%. For the week, the Dow Jones fell 1.2%, the S&P500 shed 2.4% and the Nasdaq took the biggest hit, falling 3.2%.

American Express shares fell 5% on Friday after the big bank reported earnings per share that beat expectations, but revenue came broadly in line with expectations.

Tesla shares also tumbled over 15% across the trading week after the EV giant reported earnings on Wednesday that missed expectations on both the top and bottom lines.

Over in Europe, markets closed at the lowest level in 2023 on Friday on rising treasury yields and fears of further monetary tightening out of the US. Comments made by US Fed Chair, Jermone Powell, around the need to continue with a tightened monetary policy until inflation hits the target 2% range, sparked global investor fears of further rate hikes out of the world’s largest economy. The yield on the 30-year UK government bonds hit the highest level since 1998 on Friday amid rising tensions in the Middle East and the global fear of “higher for longer” pushing investors to favour bonds over other riskier assets in the current market. The STOXX600 fell 1.3%, Germany’s DAX lost 1.64%, the French CAC shed 1.52% and, in the UK, the FTSE100 fell 1.3%.

Locally on Friday, the ASX200 fell 1.16%, weighed down by the materials sector falling 1.7% while the communication services, and healthcare sectors fell 1.43% each. 10 of the 11 sectors on the local market closed lower on Friday as surging bonds and tensions in the Middle East weighed on local investor sentiment. Energy stocks were the only equities to rally on Friday as the price of oil continues to climb as tensions in the oil producing hub of the Middle East continue rising.

Liontown Resources (ASX:LTR) fell 32% on Friday as the lithium miner resumed trading following a trading halt to capital raise after US miner Albemarle walked away from its $6.6bn takeover offer.

What to watch today:

  • Ahead of the first trading session of the week here in Australia, the SPI futures are anticipating the ASX to open Monday’s session down just shy of 1%, to carry the sell-off into the new trading week.
  • On the commodities front this morning, oil is down 0.33% at US$88.08/barrel, gold is up 0.4% at US$1981/ounce and iron ore is down 2.93% at US$116/tonne.
  • AU$1.00 is buying US$0.63, 94.69 Japanese Yen, 51.88 British Pence and NZ$1.08.

Trading Ideas:

  • Bell Potter has slightly decreased the 12-month price target on Lynas Rare Earths (ASX:LYC) from $8.50 to $8.20 and maintain a buy rating on the leading producer of rare earths following the release of the company’s 1QFY24 trading update outlining production of NdPr was 17% lower QoQ and 7% below Bell Potter expectations as maintenance works were carried out at Lynas’ Malaysian facilities over the first quarter.
  • And Trading Central has identified a bearish signal on Sigma Healthcare (ASX:SIG) following the formation of a pattern over a period of 17-days which is roughly the same amount of time the share price may fall from the close of $0.66 to the range of $0.57-$0.59 according to standard principles of technical analysis.

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