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Morning Bell 3 August

Grady Wulff
August 3, 2023

Fitch Ratings downgrading the US credit rating to AA+ from AAA sparked a panic sell off on Wall St overnight with the Dow Jones closing the day down almost 1%, while the S&P500 lost 1.38% and the tech heavy Nasdaq tumbled 2.17%. The Nasdaq has its worst day since February as the Fitch ratings cut on the long-term foreign currency issuer default rating on the U.S. citing “expected fiscal deterioration over the next three years” as the reason behind the move. The last time the US was downgraded was in 2011 by Standard’s and Poor. Economists and analysts alike are expecting the risk-driven sell-off to be short lived and the impact of the downgrade to be temporary.

Norwegian Cruise Line shares fell 3% on Wednesday, a day after the company issued weaker-than-expected guidance for the third quarter. SolarEdge Technologies tanked 19% after the company reported revenue of US$991m which fell short of analysts’ estimates of US$992m, and the company also issued weaker-than-expected guidance for Q3 revenue.

Over in Europe, markets closed lower across the region as investors digested the U.S. credit rating downgrade alongside the release of key corporate results. The STOXX600 fell 1.35%, Germany’s DAX fell 1.36%, the French CAC lost 1.26%, and, in the UK, the FTSE100 fell 1.36%.

Siemens Healthcare fell just under 7% on Wednesday after the company reported a third quarter profit decline.

The local index closed 1.29% lower yesterday with every sector ending the midweek session in the red on the back of a sell-off in New York on Tuesday. Utilities stocks took the biggest hit, with the sector closing down 2.19% while REIT stocks gave up all of Tuesday’s gains to close down just shy of 2%.

The big iron ore miners also took a hit yesterday with BHP (ASX:BHP), Rio (ASX:RIO) and FMG (ASX:FMG) falling 1.1%, 0.9% and 2% respectively on a decline in the price of iron ore to US$111/tonne. Pilbara Minerals rallied yesterday after the lithium miner announced an update on the final investment decision for its mid-stream demonstration plant with the board granting approval for construction of the plant to produce value added lithium product at Pilgangoora. The plant will cost $105m, $20m of which will be funded by an Australian government grant.

What to watch today:

  • The sell-off on Wall St is likely to impact the local market today with the SPI futures anticipating the ASX to open Thursday’s session down 0.79%.
  • On the commodities front this morning oil is trading 2.02% lower at US$79.64/barrel, uranium is up 0.18% at US$56.24/pound gold is down almost half a percent at US$1935/ounce and iron ore is flat at US$111/tonne.
  • AU$1.00 is buying US$0.65, 93.72 Japanese Yen, 51.52 British Pence and NZ$1.08.

Trading Ideas:

  • Bell Potter has increased the price target on PSC Insurance (ASX:PSI) from $5.86 to $6.41 and maintain a buy rating on the diversified insurance company following the release of the company’s trading update outlining that it expects it expects to deliver underlying EBITDA of $111m for FY23 subject to audit and signoff, which is well above the previously guided range.
  • And Bell Potter has decreased the 12-month price target on Calix (ASX:CXL) from $9 to $8.70 and maintain a speculative buy rating on the emerging environmental technology company following the release Pilbara Minerals’ update on the final investment decision for the mid-stream demonstration plant which signifies a key de-risking milestone as the plant is a joint venture between PLS and Calix. The FID reflects a satisfactory level of technical and economic feasibility and lithium phosphate marketing completed to date to advance the project into construction.

 

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