Between the Bells

The Aussie share market fell 0.55% this week (Mon-Thu) weighed down by the healthcare sector losing 1.7%, information technology stocks falling 1.66% and the materials sector falling 0.82%. Market volatility was driven this week by outlook for future rate hikes out of the RBA and Federal Reserve alongside recessionary concerns amid signs of slowing economic growth.

In this week's wrap, Grady covers: 

• (0:11) The IPOs landscape
• (0:54) The most successful & worst performing IPO in 2023
• (2:15) Why IPOs are a no-go in 2023
• (3:51) Key things to consider when investing in IPOs
• (4:45) Best performing stocks in the ASX200
• (5:46) The most traded stocks & ETFs by Bell Direct clients
• (6:21) Three economic news items to watch out for

Read the article transcript here.

On Wall Street overnight, US equities closed in the red, with all three major benchmarks declining. This was after better-than-expected jobs data out in the US, raised concerns around the state of the economy and the path of interest rates. The S&P500 dropped 0.8% with all 11 industry sectors lower. Energy was down the most, while information technology was the best performer. The Dow Jones dropped more than 1%, marking the worst daily performance for the Dow and the S&P 500 since May. And the Nasdaq closed 0.8% lower. And the 2-year US Treasury yield hit a 16-year high. 

European markets also sharply fell. The STOXX 600 tumbled 2.3%, again of the back of the US jobs report. Travel and leisure led the losses, followed by retail. 

What to watch today:

• Australian shares are set to sharply drop in line with losses across Europe and the US overnight. The SPI futures are suggesting a 1.26% fall at the open this morning. 
• In commodities, 
  • Crude oil is in the green, regaining earlier losses after falling to as low as US$70, as growing concerns about a global economic slowdown and lower demand offset concerns over tight supply. 
  • UK natural gas has dropped over 5%, extending its decline as markets assessed expectations of firm supply against rising demand. 
  • Gold is at its lowest in nearly four months as evidence that the labour market remains tight strengthened the case for a hawkish Federal Reserve, which increased the opportunity cost to hold precious metals. So keep watch of gold miners such as Newcrest Mining (ASX:NCM) and Evolution Mining (ASX:EVN). 
  • And iron ore remains close to a two-month high. 

Trading Ideas:

• Bell Potter maintains a Buy rating on Regal Partners (ASX:RPL), with the company expected to update the market on mid-year funds under management in mid/late July. They have increased their price target from $3.71 to $3.45, and at RPL’s current share price of $2.58 this implies 33.7% share price growth in a year. 
• And Trading Central has identified a bearish signal in OFX Group (ASX:OFX) indicating that the stock price may fall from the close of $1.90 to the range of $1.35 to $1.45 over 34 days, according to the standard principles of technical analysis. 

The release of the Federal Reserve’s meeting minutes sent Wall Street into sell-mode on Wednesday in this shortened trading week as investors digested the minutes including the outlook for further tightening of monetary policy. Also adding to the negative sentiment on Wall St was data released on Wednesday morning showing factory orders were weaker than expected in May. Investor sentiment may also waver later in the week when a batch of employment data is released which will enable insights into the strength and tightness of the US labour market to date. The Dow Jones fell 0.38% on Wednesday while the S&P500 lost 0.2% and the Nasdaq dropped 0.18%.

Over in Europe, markets in the region closed lower on Wednesday as investors shifted focus back to weakening global growth outlook and recessionary concerns. PMI figures for June in the eurozone showed business output for the month contracted as services growth eased despite easing inflationary pressures. This combined with China’s service sector activity also slowing considerably has investors worried about slowing global economic growth. The STOXX600 fell 0.7%, Germany’s DAX lost 0.63%, the French CAC fell 0.8%, and in the UK, the FTSE100 fell 1.03%.

The RBA rate pause-driven rally of yesterday was very short-lived as the key index closed 0.35% lower on Wednesday. The ASX traded in negative territory for almost all of yesterday’s session weighed down by sharp losses for financial, healthcare and energy stocks, while Telecommunications and Utilities stocks offset some of the heavy losses on the market yesterday. CSL weighed down the healthcare sector yesterday with the biotech giant losing 0.63% yesterday, while AMP took the biggest hit on the ASX200 yesterday losing over 6% before entering a trading halt as the Federal Court in Victoria ruled in favour of claimants against AMP in a class action known as the ‘buyer of last resort’ proceedings.

The winning stocks on the ASX200 yesterday were Elders (ASX:ELD) adding 4.8%, Bellevue Gold (ASX:BGL) lifting 4.09% and Seek (ASX:SEK) rising 3.9%. And on the losing end aside from AMP (ASX:AMP), Netwealth Group (ASX:NWL) fell 3.8% and Telix Pharmaceuticals (ASX:TLX) lost 3.4%.

Overseas, China’s latest Caixin manufacturing data released yesterday for June came in at 53.9 points which fell short the forecasted 56.5 points and is a sharp decline from the 57.1 points recorded in May, adding further concerns around China’s overall economic recovery post-pandemic.

What to watch today:

• Ahead of the local trading session here in Australia the SPI futures are anticipating the local index to open 0.51% lower following the global market sell-off overnight.
• AU$1.00 is buying US$0.67 cents, 96.28 Japanese Yen, 52.63 British Pence and NZ$1.08 dollar.

Trading Ideas:

• Bell Potter has increased the 12-month price target on Nanosonics (ASX:NAN) from $3.90 to $4.15 and maintain a sell rating on the healthcare equipment and services company following a site visit to the company’s US headquarters in Indianapolis, where the US accounts for around 90% of group revenues. The key learning from the Bell Potter team visit was that Nanosonics’ Trophon 2 device remains under penetrated in many clients, in particular amongst former GE clients. Bell Potter maintains a sell rating as they believe this stock is full priced, however increase the price target based on revenue for FY23 likely to be at the top end of guidance around 41% and gross margin in the range of 77-79%.
• And Trading Central has identified a bullish signal on Beacon Lighting (ASX:BLX) following the formation of a pattern over a period of 30 days which is roughly the same amount of time the share price may rise from the close of $1.74 to the range of $1.94 to $2.00 according to standard principles of technical analysis.

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. 

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.

Trading was positive on Wall Street overnight, as US equities closed higher, in a shortened session, that marked the start of a new trading month, quarter and half. US markets closed early ahead of the Fourth of July holiday, and they will be closed tonight as well.  The Nasdaq advanced the most, while the Dow Jones and the S&P500 closed just slightly in the green. In fact, at the end of last week, the Nasdaq closed out its biggest first-half gain since 1983, advancing 31.7%. 

What to watch today:

• The Australian share market is set to open flat this morning, according to the SPI futures, as local investors wait to see if RBA policymakers, meet expectations today at their July meeting. 
• The market is expecting the RBA to pause their rate rising cycle this month and hold the cash rate at 4.35%. The decision will be announced at 2:30pm today AEST. 
• In commodities, 
  • Crude oil is trading lower at US$70 per barrel, after Saudi Arabia announced it would extend its voluntary cut of one million barrels per day for August and could prolong further. They will produce approximately 9 million barrels a day, which will be their lowest in several years. 
  • The gold price is also in the red as investors continue to assess the path for the Federal Reserve’s monetary policy. 
  • And iron ore is lower, trading at US$113.50 per tonne, as investors are still waiting on any announcements from the Chinese government on stimulus measures for the construction sector, which struggled through pandemic lockdowns. 

Trading Ideas:

• Bell Potter maintains a Buy rating on Eagers Automotive (ASX:APE), after announcing it has increased its interest in EV Dealer Group. Bell Potter have lowered their price target to $15.00, and at APE’s current share price of $13.83, this implies 9.5% share price growth in a year. 
• And Trading Central have identified a bullish signal in Ansell (ASX:ANN) indicating that the stock price may rise from the close of $27.14 to the range of $28.10 to $28.40 over 16 days, according to the standard principles of technical analysis. 

Wall Street closed higher across the key indices on Friday to round out a strong first half of 2023. Technology stocks were once again the driving force behind Friday’s rally, with Nvidia rising 3.6%, Microsoft advancing 1.6% and apple adding 2.3% higher to close above a US$3trn market cap. The Dow Jones added 0.84% on Friday, the S&P500 rose 1.23%, and the tech-heavy Nasdaq advanced 1.45%, to end its best first half of a year since 1983. 

Nike shares fell 2.7% on Friday after the apparel giant posted a weaker-than-expected quarterly profit.

Despite the very strong first half, some of Wall Street expect investors to take profits from the first half rally in the second half amid ongoing volatility and the outlook for interest rates to continue rising alongside the potential threat of a recession.

Over in Europe, markets closed higher on Friday and notched out gains for the first half despite interest rate hikes and the regional banking crisis. Eurozone inflation data for June also released late last week showed a greater-than-expected fall to 5.5% for the month indicating the fiscal tightening of the ECB could be starting to have an impact. On Friday the STOXX600 rose 1.2%, Germany’s DAX added 1.26%, the French CAC rose 1.19% and, in the UK, the FTSE100 rose 0.8%.

Locally, the ASX rose 0.12% to finish the last trading session of the financial year at 7203 points and up 1.47% for the week. Information technology were again the leading stocks on the ASX on Friday, with the sector adding 0.83%, while consumer staples and healthcare stocks were sold off.

Link Administration Holdings (ASX:LNK) tanked almost 14% on Friday after the company provided an update that one of its largest customers, industry superannuation fund HESTA, will not renew its contract when it expires.
 
 What to watch today: 

• Ahead of the local trading session the SPI futures are expecting the ASX to open the first trading session of the new financial year 0.41% higher.
• On the commodities front this morning, oil is trading 0.13% lower at US$70.53/barrel, coal is up 0.12% at US$128.05/tonne, uranium is down 0.53% at US$56.20/pound, gold is up 0.56% at US$1918.82/ounce and iron ore is down 1.73% at US$113.50/tonne.
• Taking a look at economic data out today, Australia’s building permits data for May is released just before midday with the market expecting a rebound in permits through growth of 2%, up from a decline of 8.1% in April. Australia’s home loans data MoM is also out today with the forecast of a 4% rise, from a 3.8% fall in April.
• AU$1.00 is buying US$0.67, 96.15 Japanese Yen, 52.44 British Pence, and NZ$1.09.

Trading Ideas:

• Bell Potter has downgraded the price target on Bubs Australia (ASX:BUB) from 22 cents per share to 20 cents per share and maintain a hold rating on the company following the recent revenue guidance statement released by the infant formula company including guidance of $52.5m to $55.7m, which is well below Bell Potter’s previously expected revenue of $60m from the company for FY23. Bell Potter also noted Australian exports of finished IMF to China have remained subdued, down 40% YoY and that Bub’s has a clear challenge of managing excessive inventory positions of the Bub’s Supreme product held by channel partners in China.
• And Trading Central has identified a bullish signal on IGO Limited (ASX:IGO) following the formation of a pattern over a period of 12-days which is roughly the same amount of time the share price may rise from the close of $15.20 to the range of $16.90 to $17.30 according to standard principles of technical analysis.

The Aussie share market rose 1.35% this week (Mon-Thu) buoyed by the tech sector surging 3.66% as investor appetite for the high growth sector continues to grow.

In this week's wrap, Grady covers:

• (0:11) Geopolitical tensions in Russia
• (1:05) Volatility in commodity prices
• (1:54) Opportunities as an investor
• (2:45) The AI front
• (3:48) Best performing stocks in the ASX200
• (4:41) The most traded stocks & ETFs by Bell Direct clients
• (5:16) Three economic news items to watch out forRead the transcript article here.

Read transcript here.

In New York overnight, equities were higher after the large banks gained, following the Federal Reserve’s annual stress test. This is a test that ensures the large banks are capitalised and can lend to businesses and households even in a severe recession. All 23 of the US banks that were included in the Fed’s annual stress test weathered a severe recession scenario while continuing to lend to consumers and corporations. 

The banks lifted the Dow Jones to close 0.8% higher, while the S&P500 gained 0.45% and the Nasdaq closed flat. 

European equity markets were mixed as investors assessed commentary from major central bankers on the need to continue to fight inflation. The STOXX600 ended slightly higher, with retail stocks advancing the most on the back of robust earnings from H&M, while travel and leisure stocks declined. 

What to watch today:

• The SPI futures are suggesting the Australian share market will rise 0.17% at the open this morning. 
• Looking at commodities, 
  • Crude oil has rebounded above US$70 a barrel, as investors assessed a larger-than-expected decrease in US inventories and weighed the impact of rising interest rates on global growth and fuel demand. The latest Energy Information Administration report saw a significant drop of 9.6 million barrels in crude inventories last week, when the market expected a 1.8 million barrel draw. So, keep watch of energy producers today. 
  • Gold stocks will also be on watch after the gold price fell overnight. So watch gold miners such as St Barbara (ASX:SBM) and Newcrest Mining (ASX:NCM). 
  • And iron ore has advanced, trading at US$116.50 per tonne, very close the two-month high of US$117 touched mid-June. Markets are assessing concerns of lower demand against the possibility that the Chinese government will provide stimulus measures for its construction sector. 

Trading Ideas:

• Bell Potter maintains a Buy rating on Telix Pharmaceuticals (ASX:TLX) after recently completing a site tour of the company’s US Head Office and attended an investor day targeted at US investors and the annual SNMMI conference. Their price target remains unchanged at $14, and at TLX’s current share price of $11.44, this implies 22.4% share price growth in a year. 
• And Trading Central have identified a bullish signal in Viva Energy (ASX:VEA) indicating that the stock price may rise from the close of $2.98 to the range of $3.29 to $3.37 over 18 days, according to the standard principles of technical analysis.

Australia’s inflation rate fell faster than expected on an annual basis in May to a rise of 5.6% in the year to May 2023, below the expected rise of 6.1% and well below April’s annual increase of 6.8%, in a major sign the RBA’s rate hikes are having a strong impact in cooling inflation down under. The most significant price rises were Housing (+8.4%), Food and non-alcoholic beverages (+7.9%), and Furnishings, household equipment and services group (+6%). Offsetting the rise in CPI for the year to May 2023 was Automotive fuel prices dropping 8%, which is a significant decline on the April reading of +9.5%.

The local market responded very positively to the release of the CPI data with the ASX200 closing the midweek session up 1.10% led by a 2.14% surge in consumer discretionary stocks, a sector that has been beaten down in recent times due to higher interest rates restricting consumer spend on discretionary goods.

Over in New York on Wednesday, it was a mixed session as investors responded to comments made by Federal Reserve Chair Jerome Powell regarding the need for further tightening of monetary policy. Powell said on Wednesday that “more restrictive policy is still to come” as inflation remains above the target of 2%.

On Wednesday, the Dow Jones closed Wednesday’s session down 0.22%, the S&P500 fell just 0.04%, and the tech-heavy Nasdaq rose 0.27%.

Over in Europe, markets closed higher on Wednesday as investors in the region closely monitored further comments made by central bankers and officials at the European Central Banking conference in Portugal. Bank of England Governor Andrew Bailey defended the Bank of England’s decision to hike rates by 50 basis points last week, while the overall message from the conference remained focused on “higher for longer”.

The STOXX600 rose 0.7%, Germany’s DAX rose 0.64%, the French CAC added almost 1%, and, in the UK, the FTSE100 rose 0.52%.

What to watch today:

• Ahead of the local trading session the SPI futures are anticipating the ASX to open 0.07% lower following a weaker session on Wall St overnight.
• On the commodities front this morning, oil has rebounded to trade 2.75% higher at US$69.56/barrel, coal is up 1.91% at US$127.90/tonne, gold is down 0.32% at US$1907.23/ounce and iron ore is up 2.67% at US$115.50/tonne.
• Japan’s consumer confidence data for June is out this afternoon, with consensus expecting a rise of 0.2 points to 36.2 as the economy continues recovering from pandemic-related disruptions.
• AU$1.00 is buying US$0.66, 95.31 Japanese Yen, 52.48 British Pence and NZ$1.09.
• Stocks trading ex-dividend today include Stockland, Transurban Group, APA Group and GPT Group. 

Trading Ideas:

• Bell Potter has initiated coverage of CSR (ASX:CSR) with a Hold rating and a price target of $5.60 noting the diversified manufacturing company boasts sector leading performance with operations in building products, aluminium and property development. The hold rating is due to CSR’s addressable backlog of work from Homebuilder nearing conclusion signalling the Building Products division of CSR approaches the backend of its pricing cycle. Bell Potter is attracted to the long-term market share opportunity for Hebel in Australia and tailwinds supporting CSR’s property portfolio.
• And Bell Potter has increased the price target on PointsBet (ASX:PBH) from $2 to $2.25 and maintain a speculative buy rating on the sports betting company after the announcement that Fanatics Betting and Gaming has increased its offer for PointsBet’s US business from US$150m to $225m in cash. DraftKings was in the running to buy the American operations however failed to finalise a binding offer by 6pm on Tuesday so the PointsBet board is recommending the increased Fanatics offer given its superiority in both terms of pricing and certainty.

The local market returned to rally mode on Tuesday closing the session up 0.56% as a near 2% rise in real estate stocks lifted the market, while materials also added over 1.15% and financials closed up 0.66%.

As the cost-of-living pressures continue to bite, the flying kangaroo is flying higher than ever with demand for travel on Qantas remaining resilient as outlined by the airline yesterday in a May update to the market. Qantas said more than 4 million customers are expected to travel during the current school holidays on Qantas and Jetstar and overall demand remains strong as consumers continue to prioritise travel over other spending categories.

Bega Cheese shares also dipped on Tuesday after the dairy producer also released a trading update outlining that falling supply of Australian milk means it expects prices of milk to rise again in FY24, meaning Bega, as one of the largest buyers of farmgate milk in Australia, expects to report an impairment in the value of its build dairy business between $180m - $280m, with a clearer final figure expected when Bega receives the audited result for FY23 and will update the market when they have more clarity.

And for all the KFC chicken lovers out there, shares in Collins Foods, the operator of 272 KFC fast food restaurants in Australia, rocketed almost 16.5% yesterday after the company released full year results outlining revenue rose 14.2% to $1.349.5bn and an underlying net profit of $51.9m, which was down 12% YoY but beat expectations. Collins Foods warned inflation is set to remain sticky for the next 12-months due to persistent inflation in the costs of running the fried chicken outlets including wages, energy prices and input costs.

What to watch today:

• Ahead of the local trading session the SPI futures are anticipating the ASX to open 0.37% higher on the back of the global rally overnight.
• On the commodities front this morning oil is trading 2.76% lower at US$67.47/barrel as central global growth rate concerns offset upside momentum from Saudi Arabia’s production cuts coming into effect next week. Gold is trading 0.45% lower this morning at US$1914/ounce, and iron ore is down 1.75% at US$112.50/tonne.
• AU$1.00 is buying US$0.67 , 96.33 Japanese Yen, 52.63 British Pence and NZ$1.08.
• Australia’s monthly CPI indicator data for May is out today, with consensus expecting a decline to 6.1% for the month, down from 6.8% in April, which would indicate the RBA’s actions to hike rates is making a strong impact on cooling inflation, which has been particularly stubborn to tame especially for services and transport inflation.

Trading Ideas:

• Bell Potter has downgraded the rating on Bega Cheese (ASX:BGA) to a Hold from a Buy, and decreased the price target on the cheese and dairy company from $4.00 to $3.50 following the company’s release of an update including a rise in farmgate milk prices, Australian milk solids appearing mispriced against export ingredient prices, impeding returns in bulk ingredients and the risk that more attractively priced offshore milk solids increasingly find their way into the domestic market, all leading to headwinds in some domestic revenue streams.
• And Bell Potter has increased the price target on De Grey Mining (ASX:DEG) from $1.83 to $1.93 and maintain a speculative buy rating on the gold miner after the company released an updated Mineral Resource Estimate for its 100%-owned Mallina Gold Project, with the resource now standing at 278 million tonnes @1.3g/t of gold for 11.7 million ounces contained, representing a 10% increase in contained ounces from the prior Mallina Gold Project Mineral Resource Estimate.