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Market wraps 22nd November 2023

Morning Bell - Grady Wulff

Over in the US today, the November equities rally took a pause with the key indices sliding on Tuesday following the release of some disappointing retail results and alongside the latest FOMC meeting minutes being released. The Dow Jones fell 0.18%, the S&P500 lost 0.2% and the tech-heavy Nasdaq shed 0.59%. Clothing retailers Lowe’s and American Eagle fell 2% and 16% respectively on Tuesday after both retailers reduced outlook for the remainder of FY23 in the tougher retail spend environment. Investors responded negatively to the release of the latest FOMC minutes as officials gave no indication of interest rate cuts on the horizon, despite inflation easing in the US alongside robust economic growth which supports the notion of a soft landing over a recession.

The highly anticipated third-quarter results from leading chipmaker Nvidia were released just before 8am AEDT and investors appeared unimpressed with what they saw as shares fell almost 1% at the closing bell on Wall St. Despite reporting revenue and earnings that beat consensus, the company warned that they expect sales to destinations like China to decline significantly in Q4 due to export restrictions on the region.

And in Europe, markets closed mostly lower on Tuesday as investors await the release of final third-quarter results and ahead of the FOMC meeting minutes released in the US. The STOXX600 fell 0.1%, Germany’s DAX lost 0.01%, the French CAC fell 0.24%, and, in the UK, the FTSE100 shed 0.2%.

The Aussie market rally extended into Tuesday’s session with the ASX adding 0.28% at the closing bell, as news of further stimulus in China boosted the price of iron ore and subsequently the big miners surged in afternoon trade. The new stimulus to boost the world’s second largest economy out of deflationary territory, is through Beijing increasing budget spending to support post-pandemic recovery efforts. China is set to deploy a host of local and central government bonds which will push Beijing’s budget deficit up to a 2-decade high. The Chinese treasury also maintained its benchmark lending rates at a monthly fixing meeting on Monday.

The stimulus sparked the iron ore price to rise over US$134/tonne, while big iron ore miners including BHP, Rio Tinto and FMG each gained over 1%.

The latest RBA meeting minutes were also released yesterday with a more cautious outlook on the future of rate hikes down under. The minutes noted that underlying inflation was more persistent than expected and the risk of not achieving the 2-3% target range by the end of 2025 had increased. Housing inflation, wage price inflation, and electricity inflation remain the key drivers of Australia’s inflation remaining sticky, as well as retail spend persisting and businesses passing on cost increases to customers.

At a separate event on Tuesday, RBA Governor Michele Bullock noted inflation remains the most pressing challenge over the next few years, with a warning that low productivity is not allowing the current pace of wages and unit labour costs to be consistent with better labour outcomes.

While the RBA is expected to maintain rates at 4.35% in the December meeting, we may be surprised with another rate hike should inflation show further signs of remaining sticky.

On a stock specific note yesterday, TechnologyOne slumped over 2% despite reporting a 16% boost in profit after tax to $129.9m for FY23 and a 19% rise in revenue. While, Origin Energy fell 2.2% after a 12-month effort to sell a $20bn takeover to a conglomerate led by Brookfield, hit a speed bump when AustralianSuper, Origin’s largest shareholder, made a binding commitment to vote no to the Brookfield takeover.

What to watch today:

  • Ahead of the midweek trading session here in Australia, the SPI futures are expecting the ASX to open just 0.08% lower following the sell-off on Wall St overnight.
  • On the commodities front this morning, oil is trading 0.34% lower at US$77.54/barrel despite speculation that OPEC+ will intervene again with further output cuts to bolster oil prices, gold is up 1.16% at US$2000/ounce and iron ore is up 1.5% at US$136.50/tonne.
  • AU$1.00 is buying US$0.66, 97.08 Japanese Yen, 53 British Pence, and NZ$1.08.

Trading Ideas:

  • Bell Potter has decreased the 12-month price target on Volpara Health Technology (ASX:VHT) from $1.20 to $0.85 and maintain a buy rating on the MedTech company focused on the early detection of breast cancer, following the release of the company’s first half results. Despite revenue increasing by 17%, this growth rate in revenue more than halved relative to the PCP. Bell Potter’s analyst believes slower than anticipated customer implementations are to be expected in the coming financial years as many clients acquired in the MRS acquisition of 2020 remain on the legacy product rather than upgrading.
  • And Trading Central has identified a bullish signal on Patriot Battery Metals (ASX:PMT) following the formation of a pattern over a period of 17-days which is roughly the same amount of time the share price may rise from the close of $1.05 to the range of $1.30 to $1.36 according to standard principles of technical analysis.