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Morning Bell 7 February

Sophia Mavridis
February 7, 2023

Looking at global markets, the energy sector is underperforming: it’s been the worst performing sector month-to-date in all regions. Weakness in energy equities has coincided with that of energy commodities: all members of the petroleum complex, are down year-to-date, as well as Natural Gas down 41% so far in 2023. Information technology on the other hand, has outperformed everywhere, in particular, the sector’s lead the most pronounced in Canada, where information tech has outperformed their S&P TSX Composite by more than 5% so far this month.

Overnight, all three US benchmarks closed lower. The Dow closed down 0.1%, making up some ground after losing more than 240 points earlier in the session. The S&P500 down 0.6% and the Nasdaq down 1%. US Treasury yields rose on bets the Federal Reserve has more room to lift rates. The yield on the US 10-year note surged 10 basis points to 3.63%.

Markets in Europe also fell. The STOXX 600 closed 0.8% lower with all sectors but healthcare and utilities trading in the red.

What to watch today:

  • The SPI futures are suggesting that our local market will open 0.11% lower this morning, after US stocks extended losses.
  • Investors are awaiting the policy decision by the Reserve Bank. It is widely expected that the RBA will lift the cash rate a further 25 basis points and that announcement is scheduled for 2:30pm AEDT today. Also, in economic news, Australia’s Balance of Trade data for December will be out at 11:30am. The last announcement was in November, when Australia saw its largest trade surplus since June.
  • Company earnings to watch out for today: Cettire (ASX:CTT) and Transurban Group (ASX:TCL) will release their half-year results, while Macquarie (ASX:MQG) is set to release their quarterly report.
  • In commodities:
    • Oil prices are trading 1.6% higher at US$74.55 per barrel. And China’s economy may be looking at a stronger-than-anticipated rebound that will boost demand for crude.
    • Gold is steady, hovering near its lowest level in a month, amid a general US dollar strength, as stronger-than-expected US jobs data suggested the Fed has more room to hike interest rates.
    • Iron ore is up 1% at US$126.50 per tonne.

Trading Ideas:

  • Bell Potter maintain a Buy rating on Adrad Holdings (ASX:AHL) and it’s well worth a look at the current share price. The company is profitable, it just reiterated guidance, they have a strong cash position and FY23 PE ratio of less than 10 times. The downside however is that the CEO has announced intention to resign, the earnings outlook this year is flat and liquidity is low. However, Bell Potter haven’t changed to their forecasts. They forecast FY23 revenue and EBITDA of $137.9 million and $16.6 million, consistent with the guidance. They have lowered their price target by 6% to $1.60 and at AHL’s current share price of $1.05, this implies 51.7% share price growth in a year.
  • And lastly, Trading Central have identified a bearish signal in Northern Star Resources (ASX:NST) indicating that the stock price may fall from the close of $12.58 to the range of $11.65 to $11.85 over 24 days according to the standard principles of technical analysis.

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