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Morning Bell 9 August

Grady Wulff
August 9, 2023

Wall Street reversed Monday’s rally to trade lower on Tuesday after credit rating agency Moody’s downgraded the credit rating on several banks including M&T Bank and Pinnacle Financial citing deposit risk as the reason for the downgrades. Moody’s also placed Bank of NY Mellon and State Street on review for a downgrade. This caused investor fears of a further banking crisis to resurface thus sparking the sell-off on Tuesday. The Dow Jones fell 0.45% on Tuesday, while the S&P500 lost 0.42% and the tech-heavy Nasdaq declined 0.79%.

And in the European region markets closed lower on Tuesday as investors await the release of significant inflation data out later this week alongside reactions to a shock banking tax announcement out of Italy in the form of a 40% windfall tax on banking profits which dragged down the banking sector on Tuesday. Banks led the losses in the region overnight while healthcare stocks bucked the trend to add 3.2%. The STOXX600 ended down 0.2% on Tuesday, Germany’s DAX fell 1.1%, the French CAC shed 0.69% and, in the UK, the FTSE100 fell 0.36%.

The local market rose just 0.03% on Tuesday as a selloff in consumer staples stocks was offset by strong gains in the healthcare sector, a sector which has been sharply beaten down this year.

We are preparing for the ramp up of earnings season this week which investors have already been particularly responsive to with companies that have reported, both good and bad results, experiencing double digit share price movement on the day of results being released. The US reporting season has proven to be stronger than expected, so we could see a similar outcome of results here in Australia.

James Hardie Industries released first quarter results yesterday that sent the company’s share price soaring 15%. The leading global supplier of fiber cement building products reported record global adjusted EBITDA of US$279.1m, with an adjusted EBITDA margin of 29.2%, net income up 13% and operating cash flow increased 64%.

JHX also provided outlook, which is a big tick for investors, but only for the second quarter of FY24, with the company expecting adjusted net income between US$170-$190m, North American, its biggest market, is expected to produce volumes to be in the range of 740-770 million and CAPEX of US$550m. While the results were a decline on the PCP, they can be attributed to the currently weaker housing market and lowered demand driving lower margins.

Westpac consumer confidence data for August fell 0.4% month-over-month to 81 points in August from a 2.7% gain in July as consumers remain concerned about the high cost of living crisis in Australia. NAB business confidence for July came in vastly different from the consumer reading though, with business confidence rising 2 points for July from a flat reading in June indicating business sentiment is on the rise.

On the reporting season calendar today, we may see some market movements as investors respond to the release of the Commonwealth Bank’s results this afternoon.

What to watch today:

  • Ahead of the local trading session here in Australia the SPI futures are expecting the ASX to open the midweek session down 0.07%.
  • On the commodities front this morning, oil is trading 1.05% higher at US$82.8/barrel, gold is down 0.53% at US$1926/ounce and iron ore is down 2.35% at US$104/tonne amid declining demand and robust inventories of the commodity.
  • AU$1.00 is buying US$0.65, 93.73 Japanese Yen, 51.19 British Pence and NZ$1.08.

Trading Ideas:

  • Bell Potter has reduced the price target on Smartpay (ASX:SMP) from $2.10 to $1.97 and maintain a buy rating on the payment solutions provider on the back of competitor Block releasing a quarterly update shining light on the payment space. Bell Potter has adjusted forecasts across FY24-FY26 on the grounds of material reductions to the company’s Australian transaction segment revenues on the assumption of slowing Average Revenue Per Unit reflecting an overall slowdown in consumer spending, and softer EBITDA is expected for FY24 before Bell Potter’s assumed margin expansion kicks in. Bell Potter remain positive on Smartpay however have slightly reduced the price target on these grounds.
  • And Trading Central has identified a bullish signal on Pilbara Minerals (ASX:PLS) following the formation of a pattern over a period of 57-days which is roughly the same amount of time the share price may rise from the close of $5.32 to the range of $5.95 to $6.10 according to standard principles of technical analysis.

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