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Morning Bell 28 July

Sam Kanaan
July 28, 2023

Wall St closed lower on Thursday following the Fed’s interest rate hike of 25-basis points, and US GDP data coming in at 2.4% growth for Q2 which beat economists’ expectations. The strength in US economic growth is in-line with the Fed’s expectations for inflation in the world’s largest economy to remain sticky for a little while to come. The Dow Jones snapped its longest rally since 1987 closing down 0.67%, the S&P500 fell 0.64% and the tech-heavy Nasdaq dropped 0.55% on Thursday.

Social media giant Meta jumped 4.4% after reporting a jump in second quarter advertising revenue and topping expectations for quarterly results. Meanwhile, Southwest airlines posted a dip in quarterly profit which sent shares in the carrier down 8.47%.

Over in Europe, the European Central Bank hiked the region’s cash rate by 25-basis points overnight to 3.75%, with central bank officials noting that while inflation in the region is falling, the hike is to ensure inflation continues to fall. Stocks in the region closed higher on Thursday on the outlook for rates to pause as early as the September ECB meeting. The STOXX600 rose 1.4%, Germany’s DAX rose 1.7%, the French CAC added 2.05%, and, in the UK, the FTSE100 lifted 0.2%.

Locally yesterday, the ASX200 closed 0.73% higher buoyed by a 3.33% rise for the REIT sector as investor appetite for real estate stocks rose on optimism that the Fed has now finished its monetary tightening cycle. The energy and materials sectors were the only two sectors to close Thursday’s session in the red.

What to watch today:

  • Ahead of the local trading session here in Australia the SPI futures are anticipating the ASX to open the last trading session of the week down 0.59% on the back of the US sell-off overnight.
  • On the commodities front this morning, oil is trading 1.1% higher at 79.65 US dollars a barrel, gold is trading 1.36% lower at 1945 US dollars an ounce, and iron ore continues its rally, trading 0.86% higher at 117 US dollars and 50 cents a tonne.
  • AU$1.00 is buying US$0.67, 93.54 Japanese Yen, 52.69 British Pence and NZ$1.08.

Trading Ideas:

  • Bell Potter has downgraded the rating on Paragon Care (ASX:PGC)  from a buy to a hold and significantly decreased the 12-month price target from 45 cents per share to 26 cents per share following the release of a trading update out of the medical equipment, devices and consumables company. The update outlined the EBITDA growth expectation at around 30% which is a miss of Bell Potter expectations, while the company also announced the closure of the Lovell manufacturing business, which entail a $3m one off charge in FY23 and the company ends FY23 with net debt of $64m. Bell Potter’s analyst sees the growth outlook as opaque and appears dependent on revenue growth in Asia, which is the primary reason for the downgrade to a hold and decreased price target.
  • And Trading Central has identified a bullish signal on Stockland Corp. (ASX:SGP) following the formation of a pattern over a period of 26-days which is roughly the same amount of time the share price may rise from the close of $4.27 to the range of $4.48 to $4.54 according to standard principles of technical analysis.

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