31st January 2024

Morning Bell - Grady Wulff

In Europe overnight, markets extended the week’s rally into Tuesday’s session as investors assessed preliminary fourth-quarter GDP figures for the eurozone which came in at a flat reading for the third quarter, indicating the eurozone economy stabilised and narrowly missed a recession. The STOXX600 and Germany’s DAX each rose 0.18% on Tuesday, while the French CAC added just under half a %, and in the UK, the FTSE100 rose 0.44%.

Wall St closed mixed on Tuesday as investors look ahead to the Fed’s interest rate decision on Wednesday US time with markets expecting the Fed to maintain rates at the current level and not cut prematurely. The S&P500 closed flat, the Dow Jones ended the day up 0.3% and the Nasdaq fell 0.6%.

General Motors shares jumped 8% on Tuesday after the automaking giant posted better-than-expected earnings, while Starbucks shares are down in after hours trading after the coffee giant released disappointing earnings results.

In Asia, markets mostly fell on Tuesday with Hong Kong’s Hang Seng leading the losses as markets digested the fallout from the liquidation of embattled property developer, Evergrande.

The local market is hovering in record territory with the ASX closing 0.3% higher on Tuesday as earnings season ramps up and favourable economic data boosts investor sentiment for a soft landing both at home and in the US. The tech sector took strong lead from the tech-heavy Nasdaq overnight as the local high growth sector rose almost 2% yesterday.

While we are hovering around all-time index highs, it is important to realise the market gains are not across the board and some sectors are rallying against market expectations, for example China’s struggling property sector would traditionally have weighed on iron ore prices as the country Australia’s largest iron ore importer, however, the price of iron ore is us around US$135/tonne on expected stimulus out of the Chinese government.

Megaport jumped over 29% during trade yesterday after the cloud connectivity provider said its revenue increased 5% to $48.6m in the latest quarterly update.

City Chic recovered ground yesterday rising 22% as offshore buyers circle the company’s North America business.

Nickel Industries also soared 22% yesterday after the Indonesian-based nickel producer announced an increased dividend and unveiled a share buyback valued up to $151m.

Aussie retail sales data for December out yesterday came in at a decline of 2.7% which was attributed to a few reasons. Firstly, the black Friday and cyber-Monday sales period saw $9bn spent across the four days, a 22% rise on 2022, in a sign that many Aussies snapped up the bargains ahead of the December period. Additionally, the high interest rate environment we are currently in meant a lot of Aussies continue struggling with the high cost of living thus reducing discretionary spend all together, especially in the December period.

What to watch today:

  • Ahead of the local trading session here in Australia the SPI futures are expecting the ASX to open the midweek session flat following the mixed session on Wall St overnight.
  • On the commodities front this morning, oil is trading 1.4% higher at US$77.81/barrel, gold is up 0.08% at US$2033/ounce and iron ore is up 0.73% at US$138.50/tonne.
  • AU$1.00 is buying US$0.66, 97.40 Japanese Yen, 52.10 British Pence and NZ$1.08.

Trading Ideas:

  • Bell Potter has increased the rating on Mader Group (ASX:MAD) from a hold to a buy and has raised the 12-month price target on the leading provider of specialised contract labour following the release of the company’s December quarter update including revenues of $189.3m, which was driven by the Australia business outperforming the rest of the world with $141m. The company also reiterated FY24 revenue and NPAT guidance and paid down net debt over the period.