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Morning Bell 3 August

Sophia Mavridis
August 3, 2022

The ASX200 closed just 0.07% in the green, after earnings results from Appen (ASX:APX) and Credit Corp (ASX:CCP) disappointed investors. APX’s shares dropped after reporting a worse half than forecasts, as underlying earnings and revenue fell, while CCP’s shares dropped after reporting “challenging conditions”. Also yesterday, the RBA announced a further 50 basis point rise to the cash rate, now at 1.85%. This was in line with expectations, so we didn’t see any large impacts from the announcement. The market was trading a little lower leading up to the RBA’s announcement at 2:30pm, but then rose in afternoon trade, following the news.

The consumer discretionary sector, consumer staples and tech advanced the most, while real estate and materials declined.

The best performing stock was BNPL company Zip (ASX:ZIP) which gained 15% yesterday, and it was followed by the a2 Milk Company (ASX:A2M) and St Barbara (ASX:SBM). The worst performing stock was United Malt Group (ASX:UMG), after the company downgraded its FY22 guidance.

The most traded stocks by Bell Direct client yesterday were the BetaShares Australian Strong Bear Hedge Fund (ASX:BBOZ), Whitehaven Coal (ASX:WHC) and Rio Tinto (ASX:RIO).

European shares were in the red, as investors track risk-off sentiment globally and whether last month’s rally has any further to go. Corporate earnings also remained a core driver of individual share price movement with shares such as BP and Ferrari publishing results. The STOXX 600 closed 0.2% lower, with financial services stocks falling 1.7%. Most sectors were in negative territory, however we did see oil and gas stocks gain.

US equities were also lower, for the second day, amid more hawkish commentary from the Federal Reserve. The Dow Jones fell 1.2% or just over 400 points, weighed down by disappointing earnings from Caterpillar. The S&P500 closed 0.7% lower. And the Nasdaq fell 0.2%, however the index did see a 19% jump in Uber shares following its corporate earnings release. Stocks were also reacting to comments made by the Chicago Fed President Charles Evans, who said he hopes the central bank can raise its benchmark interest rate by half a percent. So note, there is no Fed meeting in August – the next Fed interest rate decision will be at the end of September.

What to watch today:

  • Following the negative run the US, the Australian market is set to fall 0.16% at the open this morning, going by the SPI futures.
  • In commodities, oil is trading lower with continued worries around tight supply, that has more than offset worries over an economic slowdown. Investors are also awaiting OPEC’s meeting, for any indication of a further boost in crude supply. Gold is currently falling, however did see a big jump, hovering at its highest levels in four weeks, as a falling dollar and Treasury yields supported bullion demand. And iron ore is recovering from what was a seven-month low of US$100 a tonne, after news of declining steel inventories in China.
  • Watch the share price movements of BWP Trust (ASX:BWP), SSR Mining (ASX:SSR), Pinnacle Investment Management Group (ASX:PNI), and Genworth Mortgage Insurance Australia (ASX:GMA). Those companies will be reporting their earnings results today.

Trading Ideas:

  • Bell Potter maintain a Buy rating on United Malt Group (ASX:UMG), after the company downgraded its FY22 guidance. Estimated EBITDA guidance has been downgraded from $115-140 million to $100-108 million, and the main drivers of this are in the processing division, with continued margin pressure from higher barley prices and continued delays in customer shipments. Bell Potter say the export data demonstrated a recovery in malt trade flows from the largest producing regions and a general bottoming in implied malt-barley premiums, and that they view these as precursors to a recovery in earnings. The broker has also relooked at their assumptions around energy cost inflation, North American export volumes and processing margins, and view the majority of problems as cyclical in nature. Therefore, their Buy rating remains unchanged, and they have lowered their price target from $4.55 to $3.85. At UMG’s current share price of $2.85, this implies 35% share price growth in a year.
  • Trading Central have identified a bullish signal in Xero (ASX:XRO), indicating that the stock price may rise from the close of $93.58 to the range of $112 to $116 over 63 days, according to the standard principles of technical analysis.

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