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Morning Bell 27 July

Grady Wulff
July 27, 2023

Wall Street closed mixed on Wednesday with the Dow Jones closing higher for a 13th straight session, adding 0.23%, while the Nasdaq and S&P500 ended the session in the red, down 0.02% and 0.12% respectively. Investors digested the Federal Reserve’s announcement of a 25-basis point rate hike, taking the US cash rate to 5.25%-5.50%, the highest level in more than 22-years. Markets slipped in afternoon trade following the rate hike and comments out of fed chair Jerome Powell that another rate hike may be required in September pending the economic data readings over the coming months.

Google parent company, Alphabet, jumped 5.8% on Wednesday as cloud revenue growth boosted the company to report a better-than-expected quarter. Aircraft manufacturer Boeing also lifted 8.7% on Wednesday after also reporting a second-quarter beat on the back of increased commercial aircraft deliveries.

Over in Europe, markets closed lower in the region following the announcement of the Fed’s rate hike in the US in addition to the release of corporate earnings results in the region. The STOXX600 fell 0.6%, Germany’s DAX lost 0.5%, the French CAC fell 1.35%, and, in the UK, the FTSE100 shed 0.2%. Deutsche Bank shares rose 1.36% on Wednesday after the big bank reported a net profit of 763 million euros which beat expectations despite being a 27% decline year-on-year.

It’s a big week for central bank rate decisions with the Bank of Japan rate decision out on Friday and the European Central Bank decision announced on Thursday European time.

In Australia, the ASX rose 0.85% on Wednesday on the release of Australia’s CPI data for Q2 coming in at a quarterly rise of just 0.8% to an annual rate of 6%, which is well below the annual Q1 rate of 7% and below the 6.2% economists’ were expecting. The inflation reading boosted market sentiment as investors see the falling inflation as a sign of rate pauses on the horizon out of the RBA. While 6% in still above the RBA’s target range of 2-3%, the 1% decline in the annual inflation rate over the quarter is a strong sign the RBA’s rate hikes are working to cool inflation. Materials stocks did most of the heavy lifting on the market yesterday with the sector closing 1.83% higher, again boosted by the iron ore miners on speculation that China is about to announce further policy support to stimulate demand and growth in the region again post pandemic.

What to watch today:

  • Ahead of the local trading session here in Australia the SPI futures are anticipating the local index to open just 0.01% lower following the Fed’s interest rate decision causing global markets to sell-off overnight.
  • On the commodities front this morning, oil is trading 1% lower at US$78.84/barrel, gold is up 0.36% at US$1971.61/ounce, and iron ore is up 0.87% at US$116.50/tonne.
  • AU$1.00 is buying US$0.68, 94.78 Japanese Yen, 52.69 British pence and NZ$1.09.

Trading Ideas:

  • Bell Potter has increased the 12-month price target on Catapult Group (ASX:CAT) from $1.20 to $1.35 per share and maintain a buy rating on the leading global provider of elite athlete wearable tracking technology and software provider, following the release of the company’s first quarter update. Over the quarter, Catapult reported revenue growth over 20%, annual contract value rose over 20% year-on-year on a constant currency basis, and the company hopes to achieve Free Cash Flow positivity in FY24.
  • And Bell Potter has slightly decreased the 12-month price target on Develop Global (ASX:DVP) from $3.90 to $3.80 and maintain a buy rating on the hybrid model mining company following an update including Develop withdrawing from the Kathleen Valley underground mining contract tender process due to expanded scope of the contract, whilst also noting the forthcoming restart of the Woodlawn operations coinciding with peak revenue generation from the Bellevue mining contract, underpinning a significant ramp up in earnings and future cash flow generation.

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