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Morning Bell 24 May

Grady Wulff
May 24, 2023

Wall Street closed lower on Tuesday as negotiations over the debt ceiling appear to be making little progress. Monday’s meeting between President Biden and House Speaker Kevin McCarthy was productive with President Biden saying a default was off the table, however no set resolution has been decided yet. The S&P500 dropped 1.12%, the Dow Jones fell 0.69% and the tech-heavy Nasdaq lost 1.26%. And in Europe, markets closed lower on Tuesday as investors in the region also keep a close eye on US debt ceiling negotiations, whereby talks continue with no clear resolution in check yet. The Eurozone composite purchasing managers’ index for May showed solid growth that continues to be driven by services, with manufacturing hit by a weak demand and fall in selling prices according to CNBC. Germany’s DAX fell 0.44% on Tuesday, the French CAC lost 1.33%, and, in the UK, the FTSE100 fell 0.1%.

The local market had a lacklustre session yesterday as a more than 1% loss in the consumer discretionary sector offset strong gains for financial and real estate stocks. Markets have been moving over the last week in line with progress and lack there of negotiations in debt ceiling talks between US President Joe Biden and House Speaker Kevin McCarthy. As negotiations on Tuesday were inconclusive, investor optimism took a slide and caused the negative end to a lacklustre session on the ASX. Qantas shares dipped over 2% on Tuesday despite the flying kangaroo forecasting it would reach up to $2.5bn in pre-tax profit for the 2023 financial year. Investor sentiment in the airline was shaken by the warning that softening fuel prices would put downward pressure on airfares, which in-term will cause a reduction in margins for Qantas. There is also more capacity coming online post-pandemic both through Qantas’ new fleet and as international carriers ramp up operations back into Australia, which will also contribute to the downward pressure on Qantas airfares in the highly competitive market.

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 almost half a percent lower on the back of the global market sell-off overnight as debt ceiling negotiations push on.
  • On the commodities front this morning, oil is trading 1.01% higher at US$72.77/barrel following a sharp decline earlier this week amid weakened demand fears out of China as the country’s emergence out ofCOVID-19 lockdowns has been much weaker than expected. Gold is up 0.34% at US$1976.08/ounce and iron ore is down 2.3% at US$106/tonne.
  • Taking a look at economic data out today, UK inflation rate data for April is released at 5pm AEST with consensus expecting a decline to 8.2% from 10.1% in March, in a sign the Bank of England’s rate hikes are taking effect on cooling inflation in the UK.
  • AU$1.00 is buying US$0.66, 91.55 Japanese Yen, 53.47 British Pence and NZ$1.06.
  • Stocks trading ex-dividend today include Orica (ASX:ORI), Nufarm (ASX:NUF) and Aristocrat Leisure (ASX:ALL). 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 decreased the price target on IDP Education (ASX:IEL) from $30.45 to $30.00 and maintain a hold rating on the global education services provider following the company announcing the acquisition of UK-based technology company The Ambassador Platform in a deal worth $16.8m which IDP will fund through its existing cash balance. The slight decrease in price target comes off the back of the acquisition with factoring in the total consideration for the acquisition of 9 million pounds or the equivalent of $16.8m Aussie dollars.
  • Trading Central has identified a bullish signal on APM Human Services International (ASX:APM) following the formation of a pattern over a period of 16-days which is roughly the same amount of time the share price may rise from the close of $1.95 to the range of $2.05-$2.07 according to standard principles of technical analysis.

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