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Morning Bell 25 May

Grady Wulff
May 25, 2023

Wall St closed the midweek session lower, extending the debt ceiling talks-related sell off into Wednesday as another day passed and no set plan has been decided, which investors take as a sign of concern. House Speaker Kevin McCarthy said at a press conference late on Wednesday morning that negotiators remain at odds over a debt ceiling outcome. The US FOMC meeting minutes were also released in the early hours of this morning, outlining that the members are split on the need for the Fed to further raise interest rates in the future, which also weighed on investor sentiment in the US through afternoon trade. The Dow Jones closed 0.77% lower, the S&P500 fell 0.73% and the tech-heavy Nasdaq lost 0.61% lower on Wednesday.

Over in Europe, markets also closed lower again as investors see stalls in US debt ceiling negotiations as a concern ahead of the looming June 1 possible default date according to Treasury Secretary Janet Yellen. Germany’s DAX fell almost 2%, the French CAC lost 1.7% and, in the UK, the FTSE100 fell 1.75% on Wednesday. UK inflation data out overnight showed a decline from 10.1% year-on-year in March to 8.7% year-on-year in April, which shows signs of cooling but was above economists expectations of a drop to 8.2%.

The local market extended its red run into Wednesday as investors sold out of materials stocks on the back of concerns surrounding weaker demand out of China’s steel mills causing a decline in the price of iron ore. Healthcare stocks also fell 1.13% on Wednesday, while energy stocks rose 0.7% on the price of oil rising 1.76%. Consumer discretionary stocks also took a hit on Wednesday over concerns of mounting demand headwinds signalled by Universal Stores which caused a 24% plunge in the retailers’ share price.

What to watch today:

  • Ahead of the local trading session the SPI futures are anticipating the local market to open 0.43% lower as the debt ceiling driven sell-off continues around global markets.
  • On the commodities front this morning oil remains strong, up 1.81% at US$74.23/barrel, coal is down 0.22% at US$160/tonne, gold is down 0.88% at US$1958/ounce and iron ore is down 2.83% at US$103/tonne.
  • One Aussie dollar is buying US$0.65, 91.19 Japanese Yen, 52.86 British Pence, and NZ$1.07.

Trading Ideas:

  • Bell Potter has downgraded its price target on EROAD (ASX:ERD) from $1.50 to $1.25 but maintain a buy rating on the fleet management technology company following the release of the company’s FY23 result which was in line with Bell Potter forecasts if not better in some metrics. The downgrade in price target comes amid the company’s EBIT loss of NZ$4.5m coming in larger than Bell Potter expectations of NZ$4.4m, and as a result Bell Potter has modestly adjusted forecasts for the company heading into FY24 and beyond.
  • Trading Central has identified a bearish signal on Super Retail Group (ASX:SUL) following the formation of a pattern over a period of 70-days which is roughly the same amount of time the share price may fall from the close of $11.90 to the range of $9.90 to $10.30 according to standard principles of technical analysis.

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