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Morning Bell 7 February

Grady Wulff
February 7, 2024

Wall St closed recovered some ground in afternoon trade on Tuesday to close the day mixed across the key indices as investors assessed the latest slew of corporate earnings and tried to gain further insight into the rate outlook out of the Fed. The Dow Jones rose 0.1%, the S&P500 fell 0.2% and the tech-heavy Nasdaq ended the day up 0.07%.

Technology stocks continue to outperform this reporting season in the US with Palantir Technologies soaring 19% on Tuesday after posting a revenue beat for Q4 while music streaming platform, Spotify, rose 6% after also topping expectations and posting an increase in premium subscribers.

In Europe overnight, markets rebounded to close higher as a rally for oil and gas stocks led to a positive close across markets in the region. The STOXX600 added 0.7% on Tuesday, Germany’s DAX added 0.76%, the French CAC rose 0.65% and, in the UK, the FTSE100 jumped 0.9%.

The local market extended losses into Tuesday’s session as the tech sector, which wears the full brunt of high interest rates, plunged 1.8% after the RBA did not rule out further monetary policy tightening should inflation remain high.

The RBA held the nation’s cash rate at 4.35% for the month ahead at the latest meeting yesterday as was largely expected but investors were more focused on the commentary and outlook out of the RBA to gauge an idea of when rate cuts may be on the horizon.

Inflation remaining at 4.1% is a good signal that it is easing faster than expected, however, it is still too early to assume inflation is under control. The RBA also outlined that higher interest rates are working to establish a more sustainable balance between aggregate supply and demand, and that the labour market in Australia, despite showing signs of easing, remains tight. Until the RBA sees a trend in inflation drivers coming under control over a material period, the likelihood is that the nation’s cash rate will remain on hold at 4.35%. RBA Governor, Michele Bullock, said she expects the nation’s inflation rate to fall to the target range of 2-3% by 2025.

Against all odds of declining Aussie retail spend, high interest rates and high input costs, the retailers continue to surprise with resilience as investors piled into Nick Scali and Myer on Tuesday. Nick Scali reported NPAT above the guided range for the first half of FY24 despite revenue falling in the high interest rate high cost of living environment. Myer on the other hand reported growth across most metrics and expects a strong NPAT for the first half between $49m and $53m.

And for the second time in 2 weeks, an Aussie listed gold miner has fallen out of favour with investors for announcing reduced production guidance against rising AISC, with West African Resources falling 11% yesterday after releasing the trading update.

Markets across Asia closed mixed on Tuesday, with China’s CSI index adding 3.5% amid further stimulus measures to prop up the market in the region and enhance economic recovery in the region. Hong Kong’s Hang Seng rose 4% on Tuesday, while Japan’s Nikkei fell 0.5%.

What to watch today:

  • Ahead of the local trading session here in Australia for Wednesday, the SPI futures are expecting the ASX to open the midweek session up 0.73%.
  • On the commodities front this morning, oil is trading 0.6% higher at US$73.23/barrel, gold is up 0.55% at US$2035/ounce, uranium has fallen 5.66% to trade at US$100/pound, and iron ore is flat at US$130.50/tonne.
  • AU$1.00 is buying US$0.65, 96.46 Japanese Yen, 51.80 British Pence and NZ$1.07.

Trading Ideas:

  • Bell Potter has maintained a buy rating on fashion jewellery company Lovisa (ASX:LOV) and raised the 12-month price target on the company from $25/share to $26.50 amid the growth opportunity in China representing the largest incremental market identified in the company’s global store rollout strategy. Since opening the first store in China in December, the Chinese fashion jewellery market alone is estimated at a value of US$13bn or 25x that of Australia which makes the market there highly attractive and a strong growth opportunity.
  • And Trading Central has identified a bullish signal on Eagers Automotive (ASX:APE) following the formation of a pattern over a period of 148-days which is roughly the same amount of time the share price will rise from the close of $14.50 to the range of $17.20 to $17.80 according to standard principles of technical analysis.

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