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Market wraps 10th August 2023

Morning Bell - Grady Wulff

Wall St closed lower again on Wednesday as investors await key inflation data out of the US later this week to gauge an insight into whether inflation is cooling or remains sticky which will give a hint as to the next rate move out of the Federal Reserve. The Dow Jones industrials index closed 0.54% lower, the S&P500 fell 0.7% and the tech-heavy Nasdaq lost 1.17%.

The US inflation reading for July is out on Thursday US time with economists expecting inflation to rise 3.3% in July from a 3% rise in June which would indicate inflation remains sticky in the world’s largest economy. Penn Entertainment soared 9.1% on Wednesday after the casino company said it is launching an online sportsbook with ESPN called ESPN Bet. Roblox on the other hand tanked 22% after missing Wall St expectations in second quarter results.

Over in Europe, markets recovered from Tuesday’s sell-off to close higher on Wednesday as investors digested China’s disinflation and Italy’s weakening of the surprise windfall tax on banks announced earlier this week. Italy’s finance ministry announced late on Tuesday that the tax on net interest income would be capped at 0.1% of risk-weighted assets – one fifth of the level that Citi had estimated it could reach according to CNBC. The STOXX600 closed 0.4% higher, Germany’s DAX added half a percent, the French CAC rose 0.72% and, in the UK, the FTSE100 climbed 0.8%.

Locally on Wednesday, the key index rose 0.37% led by financials stocks jumping 1.21% on the back of CBA releasing strong FY23 results. Healthcare stocks underperformed the market on Wednesday, with the sector closing down 0.9%, while tech stocks continued to rally, up 0.87% at the closing bell.

CBA’s results were the highlight of Wednesday’s trading session with the big bank announcing a record cash profit of $10.16bn boosted by higher interest rates, net interest margin up 17 basis points on FY22 to 2.07%, and dividends per share of $4.50 in FY23, up 17% on FY22. Investors responded positively to the results with the CBA share price rising 2.6% on Wednesday.

Funeral Firm Invocare also jumped almost 6% on Wednesday after the company entered into a scheme of arrangement with TPG Capital to be acquired in a deal worth $1.83bn.

On the economic data front, China’s annual inflation rate came in at a reading of minus 0.3% year on year in July which is the first decrease since February 2021. Combining this data with Chinese PPI coming in recently at a -4.4% decline, a 10th straight month that prices have been negative, indicates the Chinese economy is well and truly in deflation mode and more stimulus out of the Chinese government is required to kickstart the economy back into growth mode.

What to watch today:

  • Ahead of the local trading session here in Australia the SPI futures are expecting the ASX to open Thursday’s session 0.05% higher.
  • On the commodities front this morning, oil is trading 1.63% higher at US$84.30/barrel, gold is down half a percent at US$1915/ounce and iron ore is up 1.44% at US$105.50/tonne.
  • AU$1.00 is buying US$0.65, 93.82 Japanese Yen, 51.27 British Pence and NZ$1.08.

Trading Ideas:

  • Bell Potter has maintained a hold rating on A2 Milk (ASX:A2M) company whilst decreasing the 12-month price target on the dairy company from $5.95 to $5.70 ahead of the release of the company’s FY23 results and on the back of assessing key monthly takeaways that monitor A2’s performance. These data points include Australian exports to China remaining weak, China infant milk formula imports falling 9% year on Year and cost of goods sold continuing to fall with the average price down 22% year on year in the second half of FY23.
  • Trading Central has identified a bullish signal on Evolution Mining (ASX:EVN) following the formation of a pattern over a period of 83-days which is roughly the same amount of time the share price may rise from the close of $3.75 to the range of $4.40 to $4.55 according to standard principles of technical analysis.