15 July 20 Markets Trade in Range | Woodside Petroleum

15 July 2020

Global markets were mixed overnight, as US stocks rose (S&P 500 Index +1.3%) with investors shifting towards more beaten down and cyclical names. Energy and Materials were the best performers, while the strong performing tech sector lagged behind. Moderna Inc announced it has plans to start late-stage clinical trials for a 'promising' covid-19 vaccine, supporting investor sentiment overnight. 

Earnings seasons is now underway in the US, with three big US banks (Citi, JP Morgan and Wells Fargo) announcing larger than expected loss provisions of $28 billion across all three banks, the largest since 2008. In their outlook sighting a cautious tone that the economy is not likely to experience  a sharp "V" shaped recovery. At the same time, the recent record surge in covid-19 cases and new business restrictions particularly in California, has again raised uncertainty about how long it may take for the economy to recover.

Woodside Petroleum  (WPL:ASX)

Oil and LNG gas producer Woodside Petroleum (WPL) shares will be on watch today, after announcing yesterday (after trade) non-cash impairment losses of US$4.37 billion (A$6.2 billion) across most of the company’s assets. 

Specifically, US$2.76 billion for oil and gas properties and an additional US$1.16 billion for exploration and evaluation assets. Approximately 80% of the impairment is due to the significant and immediate reduction in oil and gas prices, assumed to remain depressed up to 2025 given the prevailing weak economic climate.

We have a high risk BUY rating on WPL, and believe there is still some short-term volatility to be faced before it can stage a recovery (after a return to near normal economic activity), but remain comfortable as an oil rebound play given its low break even point and strong balance sheet (even post asset write down).

Australia & New Zealand Market Movers

The Australian market slid lower on Tuesday (ASX 200 Index -1.2%) given the risk of rising covid-19 cases (after Victoria reported another 270 cases and risks for NSW edged higher) and geopolitical tensions rattled investor confidence. The lockdowns in the country's second most populous state saw credit and debit card spending fall across Victoria, dragging down overall spending across Australia.
Retailers were hit as Afterpay (given its direct exposure to retail spending) dropped -7.2%, while buy now pay later rival competitor Zip Co was down -7.7% as consumer confidence diminishes.
Major iron ore producers managed to hold their ground, up slightly as positive trade data from China showed exports for the month of June were up +4.3% year on year – beating market consensus.  

The New Zealand market edged higher yesterday (NZX 50 Index +0.5%) despite heightened trade tension between the US and China as investors moved away from power generators in the hunt for reliable and more attractive dividends. 

As a result, Spark rose +2.2%, while the property sector saw strong gains with local tenants better able to make rents and property prices holding steady for now, with the likes of Goodman Property Trust (+2.8%), Investore Property (+2.7%), Precinct Properties New Zealand (+1.8%) Kiwi Property Group (+1%) all advancing. Retirement village operator Arvida was also higher as it released a sound update, as the sector seems to be fairing better than many had feared. 

Pushpay Holdings posted the day’s biggest fall down -8.4% after early investors the Huljich family sold a quarter of their stake in an overnight block trade at $8.60 per share.

 

3 Things Markets Will be Watching this Week

  1. ​​​​Covid-19 newsflow around a second wave and re-opening of economies remains top of mind.
  2. A huge week ahead for earnings in the US with JPMorgan, BofA, Citi, Morgan Stanley, Goldman, Microsoft, Netflix and eBay all scheduled to release earnings.
  3. Locally, Australia’s employment data will be released along with the latest inflation and Net Migration data in NZ.
Global markets were mixed overnight, as US stocks rose (S&P 500 Index +1.3%) with investors shifting towards more beaten down and cyclical names. Energy and Materials were the best performers, while the strong performing tech sector lagged behind.

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