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Morning Bell 5 July

Grady Wulff
July 5, 2023

It was good news for all mortgage holders on the interest rate yesterday with the RBA announcing a rate pause for July at the latest RBA meeting. The local market see-sawed before the RBA rate announcement with the nation’s cash rate remaining at 4.1% for the month of ahead. Growth in Australia’s economy has slowed, the labour market tightness has begun to show signs of easing, consumer spend is decreasing, but wages growth is still the one sticky inflation driver that remains strong. The CPI figures for May were a key indicator for the RBA’s pause, with inflation down under falling to 5.6% for the month of May, from 6.8% in April, in a sign the rate hikes are having a significant effect on cooling inflation. The rate may be on pause for July however further rate hikes were not ruled out for months to come.

Locally, the ASX jumped 0.45% following the RBA’s announcement after see-sawing in morning trade, with the afternoon rally largely driven by a surge in real estate stocks as the rate pause maintains the value of properties and keeps REIT funding and borrowing costs at bay for another month.

Gold miners rallied yesterday on strength in the price of the precious commodity as well as Goldman Sachs initiating coverage of Gold Road Resources (ASX:GOR), which fuelled a rally for ASX-listed gold miners yesterday. Costa Group led the charge yesterday soaring over 12% after announcing the receipt of a takeover offer worth $3.50/share from Paine Swartz Partners in a deal worth $1.6bn. Following the receipt of the offer, Costa Group’s board has granted Paine Swartz Partners an eight-week period of non-exclusive due diligence to enable PSP to put together a binding offer.

The winning stocks on the ASX200 yesterday were led by Costa Group soaring (ASX:CGC) almost 13%, Silver Lake Resources (ASX:SLR) jumping 5.77% and Paladin Energy (ASX:PDN) lifting 4.73%. And on the losing end Domain Holdings (ASX:DHG) fell 3.66%, Star Entertainment Group (ASX:SGR) lost 1.7% and Chalice Mining (ASX:CHN) fell 1.6%.

Over in the US, markets are closed today for the July 4th Holiday, while in Europe, it was a very lacklustre session across markets on Tuesday with little direction from the US being closed and minimal economic data out in the region. Investors in the region also remain cautious around the direction of interest rates and uncertainty around global growth.

On Tuesday, the STOXX600 inched 0.1% higher, Germany’s DAX fell 0.26%, the French CAC lost 0.23% and, in the UK, the FTSE100 lost 0.1%. Germany’s trade balance data was released overnight for the month of May, coming in at a decline in trade surplus to €14.4bn euros, down from a surplus of €16.5bn euros in April.

What to watch today:

  • Ahead of the local trading session the SPI futures are anticipating the ASX to open 0.17% lower on Wednesday.
  • On the commodities front this morning, oil is up almost 2% at US$71.15 driven by Russia and Saudi Arabia cutting production output, while gold is up 0.18% at US$1924/ounce and iron ore is down 1.76% at US$111.50/tonne.
  • AU$1.00 is buying US$0.67 cents, 96.75 Japanese Yen, 52.57 British Pence and NZ$1.08.

Trading Ideas:

  • Bell Potter has downgraded the rating on Costa Group (ASX:CGC) from a buy to a hold but upgraded the price target from $3 to $3.50 per share following the announcement yesterday of Costa receiving a takeover offer presented by Paine Swartz Partners for $3.50ps in cash. Shareholders would also receive the 1H23 dividend of up to $0.04ps. Bell Potter has downgraded to a hold following the share price inflation, but the analyst notes they are not ruling out the possibility of potential interest from other parties.
  • And Trading Central has identified a bullish signal on Whitehaven Coal (ASX:WHC) following the formation of a pattern over a period of 24-days which is roughly the same amount of time the share price may rise from the close of $6.92 to the range of $8.10 to $8.30 according to standard principles of technical analysis.

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