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Morning Bell 29 March

Grady Wulff
March 29, 2023

A number of Australian economists are now expecting a 25-basis point rate hike in April following the release of Australian retail sales data for February indicating a rise of 0.2% for the month or 6.4% from February 2022, on the back of a 1.8% rise in January. The retail data shows consumers are still spending despite the increasing cost of living pressures down under, with $35.14bn spent last month. Department stores had the biggest increase in monthly turnover, while household goods retailing remained flat which isn’t great news for the likes of Temple & Webster (ASX:TPW) and Nick Scali (ASX:NCK).  UBS though, is adamant the RBA won’t hike rates at next week’s meeting but will instead hike by 25-basis points in May. Australia’s consumer price index or inflation data is out today for February which will give a greater insight into how successful the RBA’s monetary tightening policy has been to date and will give the RBA a better idea of whether a pause or hike is most appropriate at next week’s interest rate meeting.

Locally yesterday, the ASX rallied 1.04% led by a surge in energy stocks, with the sector jumping over 4%. Lithium mining and production companies felt some much-needed relief yesterday following a recent sell-off amid declining demand outlook. The reason for yesterday’s boost in lithium stocks was due to lithium giant Liontown Resources (ASX:LTR) announcing it had received and rejected a takeover offer from Abermale, the world’s largest lithium producer, in a deal worth $5.5bn on the grounds of the offer substantially undervaluing Liontown and its assets. The announcement sent shares in Liontown soaring 68.5%.

The markets globally are still responding to the unfolding banking crisis with every presenting a new look into what could be an isolated incident, or the unravelling of a global banking crisis.

ANZ chief Shayne Elliott said the latest turmoil in the global banking system has the potential to trigger a financial crisis, but it’s too early to predict if it could lead to a repeat of the 2008 GFC. The latest global bank to show signs of crumbling under pressure is leading German bank, Deutsche Bank, as shares in Germany’s leading lender tumbled as much as 14% on Friday sparked by a surge in the price of the bank’s credit default swaps, which are a form of insurance for bond holders. Much like the Swiss regulators swooping in to support Credit Suisse, the German government has said it will stand behind Deutsche come what may.

Over in New York, Wall St had a mixed session on Tuesday as rising bond yields placed pressure on high-growth technology stocks. The yield on the 2-year U.S. Treasury note climbed back above 4%, which makes future profits for growth companies, less attractive as higher rates mean that earnings years from now are worth less today. The Dow Jones ended Tuesday’s session down 0.12% while the S&P500 lost 0.16% and the tech-heavy Nasdaq took the biggest hit ending the session down almost half a percent.

In Europe overnight, investor concerns over the unfolding banking crisis in the region led to a muted trading day across the key markets in Europe. Germany’s DAX closed up just 0.09%, the French CAC added 0.14% and, in the UK, the FTSE100 rose just 0.17%.

What to watch today:

  • Ahead of the local trading session the SPI futures are anticipating the local market will open 0.37% lower to start the midweek trading session.
  • On the commodities front, oil has advanced 1.10% to trade at US$73.6/barrel amid supply concerns held after a legal dispute halted around 400,000 barrels a day of oil exports from the Ceyhan Port in Turkey this week. Gold is up 0.84% at US$1973/ounce and iron ore is flat at US$122.50/tonne.
  • The Aussie dollar is buying US$0.67, 87.58 Japanese Yen, 54 British Pence and NZ$1.07.

Trading Ideas:

  • Bell Potter has downgraded its rating on United Malt Group (ASX:UMG) from a buy to a hold and have significantly increased the price target on the company from $4.25 to $5.00 following the company announcing it has entered into a process and exclusivity deed with Malteries Soufflet for the takeover of UMG in a deal worth $1.5bn. Bell Potter sees the takeover offer and subsequent share price rise by 30% after the announcement well exceeds Bell Potter’s passive valuation for UMG and therefore justifies the downgrade to a hold from a buy rating.
  • Trading Central has identified a bullish signal on AMP Limited (ASX:AMP) following the formation of a pattern over a period of 27-days which is roughly the same amount of time the share price may rise from the close of $1.06 to the range of $1.17 to $1.19 according to standard principles of technical analysis.

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