Morning Wrap: ASX 200 to rise + UBS' top healthcare picks

The ASX is likely to start the new financial year on the right foot this morning after a near-10% gain for the index in the last financial year. Meanwhile, Apple has become the first company to close with a US$3 trillion market cap. It's a massive contrast to the US Treasury yield curve which continues to invert. Locally, the next RBA meeting takes place tomorrow and odds are for another rate hike despite the rapid cooling in the monthly inflation indicator.

Let's dive in.

S&P 500 Session Chart

Grind, grind, grind higher. (Source: TradingView)

MARKETS

• US Treasury yield curve inversions deepen as investors fear recession, Fed rate hikes

• Fed reverse repo usage falls to lowest level in a year as money market funds slowly move into Treasuries

• China factory activity contracts for third month as export orders drop by most since January

• US and Netherlands to escalate restrictions on sales of chipmaking equipment to China

STOCKS

• Nike earnings come in light with margin pressures in focus

• China's Shein denies Reuters report it has confidentially filed for a US IPO

ECONOMY

• US May core PCE inflation +4.6% y/y vs +4.7% expected

• Australian Budget surplus soars to $19 billion on the back of surging taxes

• Eurozone inflation fell more than expected to 5.5% in June but core inflation re-accelerated

• UK avoids a recession in Q1, but outlook still weak as inflation weighs

Deeper Dive

UBS' Top Healthcare Picks

Our deeper dive for today is dominated by a recent UBS presentation around the ASX healthcare sector. The healthcare sector is traditionally one of the most popular (and crowded) trades when investors are concerned by the onset of a recession. This flight to safety and quality also pushes up forward P/E valuations in a sector that already doesn't come cheap at the best of times.

For most of the names in the space, UBS rates them a BUY. These include:

• CSL (ASX: CSL) - Tailwinds in all its major products and the broker says it has plenty of tolerance for global large cap pharmaceutical names on these sorts of multiples for high earnings growth. Price target of $340/share.

• Telix (ASX: TLX) - If any of its major drugs work, this stock could be in for one almighty ride. Price target of $14/share.

• ResMed (ASX: RMD) - The market continues to underestimate the company's competitive advantage. Price target of US$290/share (its US listing's current share price is around US216/share).

Then, there are two companies rated as NEUTRAL.

• Ansell (ASX: ANN) - Unpredictable supply/demand dynamics have been painful and it's difficult to rule out future negative earnings surprises. But price stabilisation is promising. Price target of $30/share.

• Cochlear (ASX: COH) - There are no negative near-term catalysts but it's pretty difficult to justify buying a company on a 48.5x P/E ratio. Price target of $255/share.

Then, there's the one company that's rated as a SELL.

• Sonic Healthcare (ASX: SHL) - Analysts argue there is no reason to believe this company will be materially different post-COVID. Price target of $31/share.

And speaking of defensive...

State Street are sounding the alarm on this recent equity market rally - calling on investors to appreciate the boring when it's warranted. Here's what analysts wrote late last week:

Equity markets have rallied in 2023 taking the market to more expensive valuations. With continued economic uncertainty, and now investor complacency, the equity market is more vulnerable. Strategies that focus on reducing volatility have much to offer during negative equity periods and over the longer term.

ASX Corporate Actions:

• Trading ex-div: Various funds and ETFs - full list available here.

• Listings: Redox (ASX: RDX), Australian Critical Minerals (ASX: ACM)

Economic Calendar:

• 11:45am: Caixin Manufacturing PMI (China)

• 4:30pm: Switzerland CPI