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Morning Bell 6 July

Sophia Mavridis
July 6, 2022

Yesterday the RBA’s rate hike was in line with expectations, which saw the share market slightly accelerate. The cash rate was raised by 0.5% or 50 basis points to 1.35%. It was the third consecutive increase, with the central bank taking an aggressive approach to taming inflation. Remember, higher interest rates make it more expensive to borrow money, and this takes some of the pressure off rising prices by discouraging spending. And while there are a few global factors contributing, there are also domestic factors contributing to inflation, such as the recent floods, the increasing number of job vacancies and strong spending.

The local market still managed to close in the green yesterday. The tech sector performed well, and this is an industry usually quite sensitive to interest rates. Real estate was the worst performing sector, which has been the case the last few rate hikes.

As for the major banks, Commonwealth Bank (ASX:CBA), National Australia Bank (ASX:NAB) and Australia & New Zealand Banking Group (ASX:ANZ) all closed slightly lower, while Westpac (ASX:WBC) closed flat. And energy outperformed as oil prices increased, before falling overnight.

Family app Life360 (ASX:360) advanced along with the broader tech sector yesterday. Bell Potter continue to maintain their Buy rating on the stock and have a $7.50 price target. 360’s current share price is $3.24. And gold miners also advanced yesterday. Regis Resources (ASX:RRL) gained after reporting record gold production in the June quarter, and other gold stocks followed its advance, including St Barbara (ASX:SBM) and De Grey Mining (ASX:DEG).

The most traded stocks by Bell Direct clients yesterday were BHP Group (ASX:BHP), CSL Limited (ASX:CSL) and the Vanguard Australian Shares ETF (ASX:VAS).

Overseas, Europeans shares were in the red in the lead up to the European Central Bank’s meeting on Thursday. The STOXX 600 closed 2% lower, with oil and gas stocks falling more than 6%. And the Euro also dropped to its lowest level in two decades on Tuesday. US equities were mixed. The Dow Jones closed slightly lower down 0.4%, the S&P500 gained 0.2%, while the Nasdaq rallied 1.8% higher.

What to watch today:

  • The SPI futures are suggesting the Australian market will drop 0.98% at the open this morning.
  • In commodities:
    • Oil is trading more than 7% lower, as concerns of a US recession continue. Norwegian offshore workers were striking on Tuesday, and this is expected to cut around 130,000 barrels or 6.5% of the country’s daily oil production. Elsewhere, OPEC is also struggling with capacity limits.
    • Gold is trading lower, with expectations of more aggressive monetary tightening by the Federal Reserve than previously expected.
    • Iron ore prices are in the red with a weak demand outlook as steel mills cut production.
    • Copper has also sunk 5%, so watch BHP Group (ASX:BHP) and Rio Tinto (ASX:RIO).
  • Graincorp (ASX:GNC) is set to go ex-dividend today, so the stock is likely to be trading lower as investors take their profits.

Trading Ideas:

  • Bell Potter maintain a Speculative Buy rating on EBR Systems (ASX:EBR) and have lowered their price target from $1.28 to $0.90. At its current share price of $0.49, this implies 81.8% share price growth in a year.
  • Trading Central have identified a bullish signal in Life360 (ASX:360) indicating that the stock price may rise from the close of $3.24 to the range of $3.75 to $3.95 over 25 days, according to the standard principles of technical analysis.

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