Between the Bells

The first trading session on the ASX for the shortened week ended in a positive note, with the key index closing up 0.23%, and 8 of the 11 sectors ending the day higher.

Pizza giant Domino’s tumbled over 7% on Tuesday after the company said it expects sales to fall below expectations for FY23 as cost-of-living pressures continue to bite. The market may also have been led by NAB business confidence data out yesterday showing Aussie business sentiment slid 4 points in May from a flat reading in April in signs of tougher times faced in the local economy from a business perspective. Westpac Consumer Confidence data also out yesterday had a similarly lacklustre reading, with consumer optimism only rising 0.2% for June from a 7.9% fall in May, which was below expectations of a 3.2% rise.

Local tech stocks rallied yesterday, taking lead from a strong session on the Nasdaq in New York on Monday.

Over in the US, it is a crucial week for Wall St as the Federal Reserve’s next policy meeting to decide the latest rate decision began yesterday and the rate announcement will be released this afternoon, with economists expecting a halt in rate hikes which will maintain the US cash rate at 5% to 5.25% for the month ahead. The market is also responding to US core inflation figures which were released late last night AU time, showing US core inflation fell to 5.3% from 5.5% in April and the annual inflation rate fell to 4%, the lowest level since March 2021 and below the forecast of 4.1% and down from 4.5% in April.

Over in Europe overnight, markets ended higher as investors digested strong UK employment figures and US inflation data ahead of the US Fed’s rate hike decision. UK labour figures showed employment in the region rose 0.2 percentage points from February to April and average wage growth accelerated from 6.7% to 7.2% over the period, which were ahead of expectations. Some economists believe this data will add heat to the Bank of England to raise rates further at the policy meeting next Thursday. Germany’s DAX added 0.83%, the French CAC rose 0.56% and, in the UK, the FTSE100 rose 0.32% on Tuesday.

What to watch today:

• The SPI futures are anticipating the local index to open 0.62% higher this Wednesday on the back of the global inflation data-led rally overnight.
• On the commodities front this morning, energy stocks have come under pressure this week amid the declining price of oil, with the commodity down 6% over the last week to US$67.32/barrel amid the Fed’s latest meeting, concerns over fuel demand growth in China and increasing supply out of Russia pressuring the price of the commodity. This morning though, oil is up almost 3% at US$69.08/barrel, gold is down 0.77% at US$1941.71/ounce and iron ore is down 3.46% at US$111.50/tonne.
• AU$1.00 is buying US$0.68, 94.78 Japanese Yen, 53.97 British Pence and NZ$1.10 cents.

Trading Ideas:

• Bell Potter has downgraded the price target on Cedar Woods (ASX:CWP) from $5.40 to $5.20 but maintain a buy rating on the property and land development company following the release of a trading update whereby the company announced lower guidance for FY23 NPAT to approximately $30m compared to the previous guidance of $37.4m. Cedar Woods attributed the downgrade in guidance to weather conditions and supply chain constraints having delayed settlements from Q4 FY23 to FY24.
• And Bell Potter has increased the price target on Doctor Care Anywhere (ASX:DOC) from 6cps to 8cps and maintain a speculative buy rating on the tele-health company after the company reported a 21% rise in patient consultations in Q1FY23 from the PCP, in addition to record consultations in May of 65,200 patients.

In New York overnight, the S&P500 jumped to its highest level in 13 months, markets have come to expect that the Federal Reserve will skip a rate increase at this week’s Fed meeting. The Fed has hiked 10 consecutive times since beginning its policy tightening cycle in March last year. US investors are also awaiting inflation data out on Tuesday in the US, with economists expecting CPI to show inflation dropping to a 4% annual rate in May. All three major benchmarks rallied overnight. The S&P500 up 0.9%, the Dow up 0.56% and the Nasdaq up 1.53%. 

European markets also closed higher, ahead of the major central bank meetings. 

What to watch today:

• Well, to start the shortened trading week, after yesterday’s public holiday, the SPI futures are suggesting that our local market will open 0.35% higher this morning. 
• In commodities, 
  • The oil price is down to its lowest level in over 5-weeks, with concerns about weakening demand in China as well as rising Russian crude supply outweighed Saudi Arabia’s plans to slash output. The oil price is currently trading 4.25% lower at US$67.12 per barrel. So, keep watch of energy producers today. 
  • The gold price is also lower ahead of central bank meetings scheduled this week for the Federal Reserve, the European Central Bank, and the Bank of Japan. 
  • Meanwhile, iron ore is up more than 3%, trading at US$115.50 per tonne, extending its rebound from the six-month low amid expectations of improved demand. 
• In economic news, at 10:30am today AEST Westpac will release its data on consumer confidence for June and at 11:30am today NAB will release its data on business confidence for May. 

Trading Ideas:

• Bell Potter have upgraded their recommendation on PWR Holdings (ASX:PWH), a leading provider of customised cooling solutions to the global motorsports market and the wider automotive industry. They’re upgraded their rating from a Hold to a Buy, after reviewing forecasts considering some soft trading updates from various retailers. The price target has been decreased by 2% to $10.50, which is more than a 15% premium to the share price, hence the upgrade. 
• And Trading Central have identified a bearish signal in Region Group (ASX:RGN), indicating that the stock price may fall from the close of $2.44 to the range of $2.33 to $2.35 over 26 days, according to the standard principle of technical analysis. 

The Aussie share market fell 0.64% (Mon-Thu), as investor sentiment was dampened by the RBA’s unexpected 25-basis point rate hike announcement on Tuesday, with warning of further hikes to come if inflation does not move toward the 2-3% target range.

In this week's wrap, Sophia covers:

• (0:11) What’s happening in the energy sector
• (1:22) Concerns for manufacturers with energy transitions
• (1:57) The surge in gas prices
• (2:47) Best performing stocks in the ASX200
• (3:31) The most traded stocks & ETFs by Bell Direct clients
• (4:04) Three economic news items to watch out for

In the US overnight, the S&P500 and Nasdaq closed lower as investors took profits from technology stocks that have rallied over recent weeks, and overall investor sentiment was dampened by a surprise interest rate hike out of Canada’s central bank due to persistent inflation in the region. The rate hike out of Canada heightened investor fears ahead of the Fed’s FOMC meeting next week.

US trade balance data for April was also released yesterday weighing on investor sentiment as the data showed the US trade deficit widened in April by US$14bn to US$74.6bn as exports fell 3.6%, which is the most since the pandemic began.

The S&P500 lost 0.38% on Wednesday while the Nasdaq declined 1.29%, but the Dow Jones rose 0.27%.

Over in Europe, markets also closed lower as investor sentiment remains shaky amid persistently high inflation and fears of further rate hikes to come, especially out of the UK, with new data showing the UK will experience the highest level of inflation among all advanced economies this year.

Germany’s DAX fell 0.2% on Wednesday, the French CAC lost 0.09%, and, in the UK, the FTSE100 fell 0.05%.

The local index closed 0.16% lower on Wednesday, weighed down by losses in the energy, financials and real estate sectors as investors assessed outlook for further rate hikes out of the RBA alongside the release of Australia’s GDP growth rate data for Q1 which came in below expectations at an expansion of 0.2% quarter-on-quarter, but revealed the low unemployment rate and demand for services had lifted unit labour costs and further weakened already low productivity output growth. Through the year, the economy grew by 2.3%, slowing from a 2.7% expansion in Q4.

The GDP data also validates the RBA’s case to possibly continue raising interest rates as real GDP growth slowed mostly from higher prices. It’s also important to note that the RBA are watching key developments in economic datapoints to guide the rate movements forward, including the global economy, household spending, and growth in labour costs. On the latter point, GDP per hour worked fell by 0.3% quarter-on-quarter in Q1, resulting in an annual fall of 4.6% in productivity – which is the largest on record according to CNBC and is a key indicator of the need to raise interest rates. This is because the labour market data suggests that productivity will likely remain weakened this quarter, which will again hike unit labour cost growth and keep services inflation stubbornly high.

What to watch today:

• Ahead of the local trading session here in Australia the SPI futures are expecting the local market to open 0.18% lower.
• On the economic data front today, Australia’s trade balance data for April will be released just after midday with consensus expecting a decline in Australia’s trade surplus from $15.3bn in March to $14bn in April amid a decline in net exports.
• On the commodities front this morning, oil is trading 1.01% higher at US$72.47/barrel, uranium is up 1.87% at US$54.60/pound, gold is down 1.02% at US$1942.81/ounce and iron ore is up almost half a percent at US$109/tonne.

Trading Ideas:

• Bell Potter has increased the price target on Green Technology Metals (ASX:GT1) from $1.38 to $1.46 and maintain a buy rating on the lithium exploration and development company after the company announced an initial 8.1million tonnes at 1.32% Lithium Oxide Mineral Resource Estimate for the Root Bay prospect, part of its 100%-owned Root Project in Ontario, Canada.
• Trading Central has identified a bearish signal on Air New Zealand (ASX:AIZ) following the formation of a pattern over a period of 165-days which is roughly the same amount of time the share price may fall from the close of 69 cents to the range of 59 to 61 cents according to standard principles of technical analysis.

Wall St closed modestly higher on Tuesday as investors await inflation data and the Federal Reserve’s policy meeting outcome on the rate hike front next week. The S&P500 added 0.24% trading near a nine-month high, while the Nasdaq added 0.36% and the Dow Jones closed just 0.03% higher on Tuesday.

The 3-day ASX rally ended yesterday with the key index closing 1.20% lower as investors responded to the RBA rate hike announcement of a 25-basis point hike for June, in addition to RBA governor Philip Lowe flagging ‘further tightening of monetary policy may be required to ensure that inflation returns to the target 2-3% range in a reasonable timeframe’. The nation’s cash rate now sits at an 11.5 year high of 4.1% for June and is up 400-basis points since the RBA began raising rates last May.

The key drivers of the interest rate hike surround the tight labour market, low unemployment, which moved higher in April, and wages growth compared to low productivity output, which accelerated to a decade-high in the March quarter.

Dr Lowe said recent data indicated upside risks to the inflation outlook notably labour costs are rising ‘briskly’ with ‘growth in the public sector wages expected to pick up further and the annual increase in award wages was higher than it was last year’. While majority of economists were expecting a pause in the cash rate for June, some lifted their call to expect the hike on Friday last week after the Fair Work Commission announced a 5.75% raise in minimum wages, and CPI data last Wednesday came in hotter than expected. For those with a variable interest home loan, you’ll unfortunately feel a heavy brunt of this rate hike if/when the banks pass it on in full to loan customers, with the average loan of $500,000 incurring a $76 increase in monthly repayments after this rate hike, taking the total monthly increase to $1134 since the RBA began raising rates last May.

Retail spend has come down as the high cost of living pressures begin to bite, which is taking impact on Consumer discretionary stocks as the sector led the losses on the ASX yesterday. Stocks in this sector face some of the toughest headwinds from rate hike announcements with cost-of-living pressures depleting consumer demand for discretionary goods. Baby Bunting plunged over 23% on Tuesday after the infant goods retailer released a trading update and downgraded guidance amid muted sales growth.

Investors only bought into Utilities stocks yesterday given their defensive nature, meaning people still need the services such companies provide during all phases of the business cycle. On the commodities front this morning, oil is trading 0.81% lower at US$71.57/ barrel, gold is up 0.11% at US$1963/ounce and iron ore is up 2.84% at US$108.50/tonne. Iron ore hit a six-week high on Monday as the price rally this week has been sparked by hopes of a policy introduction in China through new measures to support the country’s property market.

What to watch today:

• Ahead of the local trading session here in Australia, the SPI futures are anticipating the ASX to open 0.34% higher.
• Taking a look at economic data out today, Australia’s GDP growth rate for Q1 is out just after midday with consensus expecting growth of 0.3% for Q1, down from a 0.5% expansion in Q4, which will mean the 6th consecutive period of economic growth but at a slower pace than prior expansions.

Trading Ideas:

• Bell Potter has reduced the price target on Adacel Technologies (ASX:ADA) from 85 cps to 80 cps and maintain a buy rating on the leading global provider of simulation and control systems for the civil aviation and defence sectors, due to the company announcing two new contract wins but downgrading its FY23 guidance given one of the contracts was awarded later than expected and also delays in the finalisation of a contract renewal.

US equities closed in the red in New York overnight, with the Dow Jones closing 0.6% lower and the S&P500 slightly down 0.2%, as industrials and financials led seven of the eleven industry sectors lower. The Nasdaq was down only 0.09%. US markets eased after Friday’s broad-based rally. 

In Europe, markets also closed lower as investors digested the US debt ceiling agreement and euro zone inflation data, which showed inflation falling to its lowest level since February 2022. The STOXX 600 closed 0.5% in the red, following muted trading for most of the trading session. Oil and gas stocks were down the most, despite oil prices remaining in positive territory. Travel and leisure stocks were also lower. 

What to watch today:

• The SPI futures are suggesting that our local market will drop 0.57% at the open this morning, following the broad decline across global markets overnight. 
• In economic news today, the RBA will announce its cash rate decision. The consensus is that central bank will hold the cash rate at 3.85% this month. The GDP growth rate is not announced until tomorrow, so that may be contributing to the market expectations, waiting to see what GDP comes in at before announcing further hikes. 
• And in commodities, 
  • Oil prices were trading more than 1% higher, as expectations of lower supply outweighed concerns over slowing demand. 
  • Gold is in the green following a modest weakening of the US dollar and a slight decline in US Treasury yields. This followed weak eco data in the US that reinforced the view that the Fed will pause the tightening cycle next week. 
  • And iron ore is also higher, recovering after hitting a 6-month low. 

Trading Ideas:

• Bell Potter maintains a buy rating on Bega Cheese (ASX:BGA) after reviewing Bega opening farmgate agreements across all geographics, to derive a net movement in estimated FY24 farmgate costs relative to FY23 estimates. Bell Potter’s price target remains unchanged at $4.10, and at BGA’s current share price of $3.59, this implies 14.2% share price growth in a year. 
• Bell Potter also maintains a Speculative buy rating on Frontier Digital Ventures (ASX:FDV) following an amended Subscription Agreement regarding the acquisitions of FDV portfolio companies and InfoCasas. They have lowered their valuation from $1.05 to $0.89, and at the stock’s current share price of $0.36, this implies 147.2% share price growth in a year. 

Wall St ended Friday’s session on a high, with the key indices each adding over 1% and the Dow Jones jumping 2.1% as investors welcomed a mixed payrolls report with an unexpected rise in unemployment and a slowdown in annual wage growth, all signs that the Federal Reserve’s aggressive rate hike action is taking effect on cooling economic growth in the US. In May, the US economy added 339,000 jobs in a sign that the booming labour market in the US remains strong, however unemployment increased to 3.7% from 3.4% which was one of the fastest increases in unemployment since early in the pandemic. Some of the increase in unemployment could be driven by mass layoffs in the technology sector that have seen over 200,000 workers lose their jobs this year across the big and smaller tech names.

Over in Europe, markets closed higher on Friday as investors responded to US lawmakers passing a bill to raise the US debt ceiling and cap government spending for 2-years, just days before the potential default deadline date. The STOXX600 rose 1.5% led by mining, oil and gas stocks all rallying. Germany’s DAX rose 1.25% on Friday, the French CAC added 1.87% and, in the UK, the FTSE100 rose 1.56%.

OPEC+, a group of global oil producers, met in Vienna on Sunday to discuss output policy to stabilise oil prices which have been battered down in recent times by weakened demand out of China. At the meeting on Sunday, OPEC+ reached an agreement to extend output cuts announced in April this year of 1 million barrels per day into 2024 amid price instability of recent times and the potential for excess supply.

On the local index, Friday’s trading session ended the week on a positive note as the ASX closed 0.48% higher on the last trading session of the week, buoyed by a sharp rally for materials stocks on a rise in the price of iron ore. Consumer staples and health care stocks were the sectors that underperformed the local market on Friday.

What to watch today:

• Ahead of the local trading session, the SPI futures are anticipating the ASX to open the first trading session of the week up 1.06% on the back of the global rally that ended last week on a positive note.
• On the commodities front this morning, crude oil is trading 3.31% higher at US$74.10/barrel, uranium is up 1.87% at US$54.60/pound, gold is up 0.11% at US$1949.63/ounce and iron ore is up almost 1% at US$105.50/tonne.
• On the foreign exchange front, AU$1.00 is buying, US$0.66, 92.51 Japanese Yen, 53.17 British Pence and NZ$1.09.
• Taking a look at economic data, Germany’s trade balance data is released today for April with the market expecting a decline in trade surplus to 15.1bn euros from 16.7 billion euros as the economy entered into a recession in recent weeks.

Trading Ideas:

• Bell Potter has increased the price target on Wisetech Global (ASX:WTC) from $60 to $74.25 and maintain a hold rating on the leading global provider of logistics software solutions following increased growth outlook for the company on the back of assumed greater penetration or success in both customs and compliance and landside logistics markets. This follows the announcement of a global customs rollout with Kuehne Nagel – the largest sea-freight forwarder in the world, and the acquisition of two landside logistics companies this half.
• And Trading Central has identified a bullish signal on Reece (ASX:REH) following the formation of a pattern over a period of 34-days which is roughly the same amount of time the share price may rise from the close of $18.32 to the range of $19.15 to $19.35 according to standard principles of technical analysis.

Well markets rebounded overnight, after falling the session prior. On Wall Street, all three major benchmarks closed in positive territory. The Nasdaq and the S&P500 closed at their highest levels since August, up 1.28% and 1% respectively, while the Dow Jones gained 0.47%. The rally was off the back of the bill to raise the debt limit and cap government spending being passed in the House by a wide margin late Wednesday in the US, sending the bill to the Senate only days before Monday’s default deadline. 

European markets also rallied, after having hit a two-month low. The STOXX 600 closed 0.8% higher, as almost all sectors gained. Mining stocks rose after Chinese factory activity beat expectations. Media stocks were also up, while household goods closed lower. 

What to watch today:

• The SPI futures are suggesting that our local market will rise 0.66% at the open this morning. 
• Local economic news out today includes home loan data for May, while tonight in the US the unemployment rate will be announced. 
• In commodities, 
  • Oil is on the rise, currently trading more than 3% higher, recovering from earlier losses after touching a two-month low in the previous session, supported by a weaker US dollar and market relief, following the US debt ceiling negotiations. Also, OPEC+ is meeting this week, so markets are awaiting potential price-supportive measures. 
  • Natural gas has fallen to the lowest level in four weeks, driven by record US output, increased gas exports from Canada as well as a higher-than-expected storage build last week. 
  • The gold price is higher, while iron ore is holding close to a six-month low. 

Trading Ideas:

• Bell Potter maintain a Buy rating on AROA Biosurgery (ASX:ARX), a commercial stage medical device company that operates within the complex wound care and soft tissue reconstruction sector. They reported positive FY23 results, with revenue and EBITDA improvements. The FY23 performance was within guidance and largely in-line with Bell Potters forecasts. The price target is $1.45, and at the stock’s current share price of $0.92, this implies 58.5% share price growth in a year. 
• And Trading Central identified a bullish signal in Pro Medicus (ASX:PME) indicating that the stock price may rise from the close of $61.65 to the range of $64.20 to $64.70 over 22 days, according to the standard principles of technical analysis. 

European markets tumbled as concerns remained over the US debt ceiling bill ahead of the deadline of June 5th. German inflation data will also be out tonight as well as a euro zone flash reading. 

Additionally, investors are weighing China’s manufacturing PMI data, that declined for the second straight month and at a faster rate than expected. The STOXX 600 closed the session down 1.1%, with all sectors in negative territory. Auto stocks led the losses, followed by chemicals stocks. 

Over in New York, US equities also declined overnight. The Dow Jones fell 0.4%, the S&P500 down 0.6% and the tech heavy Nasdaq also down 0.6%.The close also marked the end of the May trading month, which saw the Nasdaq finish the month 5.8% higher, boosted by artificial intelligence-related stocks. The S&P500 added 0.3% in the month, while the Dow fell 3.5%. 

What to watch today:

• Following global markets overnight, the SPI futures are suggesting our local market will drop 0.18% at the open this morning. 
• In commodities, 
  • Oil has sharply fallen, now trading around US$68 a barrel, extending the monthly loss for May to nearly 11%. The decline is due to concerns surrounding a slowdown in demand, mainly from China, the top crude importer. So keep watch of energy producers such as Beach Energy (ASX:BPT) and Santos (ASX:STO). 
  • The gold price steadied overnight, so gold shares could have a decent run today. As market volatility leads to increased demand for the safe haven asset, its worth keeping your eye on Evolution Mining (ASX:EVN), Gold Road Resources (ASX:GOR), Regis Resources (ASX:RRL) and other gold stocks. 
  • And the price of iron ore is also down, now trading at US$103.50 per tonne, holding close to a six-month low, amid evidence of low demand and strong supply. 
• In economic data, today we’ll receive retail sales data for Retail Sales data for April and Private Capital Expenditure data for Q1. 

Trading Ideas:

• Bell Potter maintain their buy rating on IVE Group (ASX:IGL) with a price target of $3.00. They are the largest integrated marketing communications business in Australia with leading market positions across every sector in which the company operates. The company has been caught up in the recent broad sell-off of retailers following some soft trading updates, such as City Chic and Super Retail, as well as concern around reduced spending. Bell Potter have updated each valuation used in the determination of their price target for market movements and time creep, but overall, there is no change in the $3.00 price target. At the current share price of $2.28, this implies 31.6% share price growth in a year. 
• And Trading Central have identified a bearish signal in Lindsay Australia (ASX:LAU) indicating that the stock price may fall from the close of $1.25 to the range of $1.11 to $1.15 over 31 days, according to the standard principles of technical analysis. 

It was a very muted session on the ASX yesterday as the market quickly overcame the boost from US debt ceiling negotiations ending in an agreement to be presented to congress, and investors shifted focus ahead to next week’s rate hike decision out of the RBA and the potential for inflation to remain stickier down under for a little while longer.

The ASX fell 0.11% on Tuesday weighed down by a 0.88% fall in the REIT sector, while communications services stocks rose 0.62%.
Paladin Energy tanked over 20% on Tuesday before being put into a trading halt as investors fled the uranium miner on rumours that Namibia may follow the Chilean government move to nationalise some mining assets. Paladin’s Langer Heinrich Mine is in Namibia which is why investors fled the stock yesterday. The sell-off in miners with operations in South Africa extended to Syrah Resources who’s Balama Graphite operation is in Mozambique which is in the same region as Namibia.

 AUSTRAC and embattled casino giant Crown proposed an agreed $450m penalty to Crown to cover breaches of anti-money laundering laws at the company’s Melbourne and Perth casinos. The matter will be heard in court on July 10 to July 11. On the economic data front yesterday, building approvals in Australia sunk 8.1% month-on-month in April and down 25.5% year-on-year, with private sector houses down 3.8%. The market was expecting a rise of 2%, but the sharp decline of 8.1% takes approvals for new home builds to the lowest level in 11-years, in a sign that appetite for building investment properties remains weak and will continue dragging on the economy.

Over in the US, stocks rallied in the early hours of trade as investor sentiment was high following the initial agreement being reached over the debt ceiling crisis. Tech stocks were the top performers led by an AI stock rally after Nvidia became the first chipmaker to join the trillion-dollar market capitalisation club last week. In afternoon trade the key indices pulled back as investors kept a close eye on the Fed’s debt ceiling debates and also on the outlook potential for another rate hike out of the Federal Reserve next month, with the Dow Jones closing Tuesday’s session 0.1% lower, while the S&P500 closed flat and the tech-heavy Nasdaq rose 0.3%.

What to watch today:

• Ahead of the local trading session here in Australia the SPI futures are anticipating the local index to open 0.5% lower on dampened global sentiment over the passing of the debt ceiling through congress.
• On the commodities front this morning, oil has plunged 4.47% to trade at US$67.73/barrel ahead of OPEC+s meeting this Sunday and amid the US debt ceiling saga. Gold is up 0.81% at US$1958.61/ounce and iron ore is up 2.45% at US$104.50/tonne.
• AU$1.00 is buying US$0.65 cents, 91.81 Japanese Yen, 52.95 British Pence and NZ$1.08

Trading Ideas:

• Bell Potter has increased the price target on Clarity Pharmaceuticals (ASX:CU6) from $1.35 to $1.40 and maintain a speculative buy rating on the clinical stage radiopharmaceutical company following a report out of the company on progress in its latest clinical trial investing the use of its proprietary radiopharmaceutical for the treatment of metastatic castrate resistant prostate cancer. The update outlined Cohort 1 dosed 6 patients and the treatment was well tolerated, and Cohort 2 will now commence at a higher dose of the treatment.
• Trading Central identified a bullish signal on Service Stream (ASX:SSM) on the 30th of May following the formation of a pattern over a period of 16-days which is roughly the same amount of time the share price may rise from the close of $0.64 to the range of $0.73 to $0.75 according to standard principles of technical analysis.