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Market wraps 19th July 2023

Morning Bell - Grady Wulff

US equities rallied on Tuesday with the Dow Jones closing higher for a 7th straight session, on the back of stronger-than-expected earnings results. Bank of America shares rose 4.2% after it reported earnings above expectations for the second quarter thanks to higher interest rates, while Morgan Stanley added 6.2% after a beat on both revenue and adjusted earnings per share. The Dow Jones closed up 1.06%, the S&P500 added 0.71% and the tech-heavy Nasdaq ended Tuesday’s session up 0.76%.

Earnings season kicked off this week and while the expectation is for a poor reporting season ahead around the world, it may be early days, but it is so far off to a strong start. It is a very important period to see exactly how companies weathered the high inflation, high interest rate storm of the last financial year.

US retail sales data out overnight showed an uptick of 0.2% month-over-month in June which was below economists’ expectations of a 0.5% increase, indicating American consumers are feeling the brunt of interest rate hikes on the consumer spend front.

In Europe overnight, markets rallied as investors in the region assess earnings results out of both local and US corporations. British grocery delivery firm Ocado was the top gainer amongst European stocks as it soared 19% after reporting a swing to underlying profit for the first half results, though a wider group loss before tax, while the company also rallied amid rumours of being a takeover target from Amazon. The STOXX600 rose 0.6% on Tuesday, Germany’s DAX added 0.35%, the French CAC rose 0.38% and, in the UK, the FTSE100 added 0.64%.

The local share market fell 0.2% yesterday as investor sentiment was dampened by the release of the RBA’s latest meeting minutes whereby the prospect of more rate rises was outlined, if inflation in Australia doesn’t fall to the target range. This naturally caused investors to sell out of REIT stocks yesterday as rising interest rates devalues the properties owned by REIT companies and raises the costs associated with running the REIT assets.

Retailers took a big hit again yesterday as investor fears of rate hikes hit the consumer discretionary sector, which traditionally feels the full brunt of interest rate hikes in the form of higher costs and lowered demand. The big four banks all rallied yesterday though which offset some of the heavy losses for consumer discretionary and mining stocks.

Shares in manufacturing company Ansell tanked over 14% on Tuesday as investors responded to the company’s trading update outlining guidance for both FY23 and FY24 and the outlook for higher costs in FY24. The company’s guidance outlined the expectation for Industrial GBU sales for FY23 to have fallen over $12.5m from FY22, while organic growth was achieved in both Mechanical and Chemical divisions. Healthcare GBU sales were also down over $200m from FY22.

China’s GDP for Q2 out on Monday came in at growth of 6.3% for the quarter which fell short of economists’ expectations and provided a further sign of the weak post-pandemic recovery out of the world’s second largest economy.

What to watch today:

  • Ahead of the local trading session here in Australia the SPI futures are anticipating the ASX to open 0.54% higher following the global results-driven rally overnight.
  • On the commodities front this morning, oil has rebounded from lows earlier in the week to trade 2.06% higher at US$75.68/barrel, gold is up 1.13% at US$1976.76/ounce and iron ore is down 1.28% at US$115.50/tonne.
  • On the economic calendar today, the annual UK’s inflation rate data for June is out this afternoon with the market expecting a slight decrease to 8.2% from 8.7% in May.
  • AU$1.00 is buying US$0.68, 94.58 Japanese Yen, 52.12 British Pence and NZ$1.08.

Trading Ideas:

  • Bell Potter has increased the price target on Cyclopharm (ASX:CYC) and maintain a buy rating on the healthcare company following the release of a trading update outlining revenues of $15.3m for the first half of FY23 comprising around $7.5m in Technegas revenues and the remaining $7.8m from 3rd party distribution sales. Cyclopharm is also on watch in the lead up to the FDA inspection of the Kingsgrove manufacturing facility ahead of the FDA approval decision expected on 29th September.
  • And Trading Central has identified a bearish signal on Dicker Data (ASX:DDR) following the formation of a pattern over a period of 90-days which is roughly the same amount of time the share price may fall from the close of $7.96 to the range of $6.60 to $6.90 according to standard principles of technical analysis.