Global markets were generally higher on Friday although the pace of Wall Street's recovery rally eased ahead of a three-day break in the US. The US market (measured by the S&P 500 index) closed out its fastest-climbing week since 2013, although it surrendered most of its earlier gain on Friday after a US grand jury indicted several Russians for meddling in the 2016 presidential election.
Once again, in 2018 we believe there will be higher volatility in markets relative to recent years as global central banks start to normalise policy.
A strong fourth-quarter US reporting season and deep corporate tax cuts introduced this year have led analysts to increase their estimates for 2018 S&P 500 earnings growth to 19% from 12% in early January. While US earnings season has come to an end, local earnings season gets in to full-swing across Australia & NZ this week, with major companies such as miner BHP Billiton likely to feature in news flow and drive investor sentiment.
Stock in Focus: Genesis Energy (GNE:NZ / GNE:AX)
GNE was among the companies to report 2018 interim results last week, with the electricity retailer delivering solid numbers as recent acquisitions and improved wholesale margins contributed to operating earnings (EBITDAF) of $200m, which were up +28% from last year.
Genesis benefitted from the drier season which contributed to stronger wholesale margins – which is a by-product of GNE’s diversified energy generation portfolio. The increased ownership of Kupe and Nova-Energy’s LPG business was also a significant contributor to GNE’s performance. These gains were partially offset by residential electricity and gas demand declines.
It appears Genesis is benefitting well from its recent two large acquisitions and from its diversified energy production base. While we are generally cautious on the power generator sector, especially in an environment of rising interest rates, GNE remains our top pick in the NZ electricity generator sector.
We currently have a BUY rating on GNE.
Members should look out for our full update on GNE to be released in this week’s weekly report.
Australia & New Zealand Market Movers
The Australian share market was slightly lower on Friday (ASX 200 index -0.08%) as the ASX wrapped up a positive week with a small loss, as financials and miners weighed on the index at the end of another busy week for company earnings. Share markets rebounded over the last week as share investors became a bit more relaxed about the prospect of higher inflation and interest rates and the unwinding of short volatility trades ran its course. In stock news, Medibank Private was up strongly on a result, while Star Entertainment fell after updating investors on Friday.
The New Zealand market was higher on Friday (NZX 50 index +0.77%) as local shares rallied as Tourism Holdings hit a record and Auckland Airport gained on its first-half earnings. Tourism Holdings said it has formed a joint venture with Thor Industries, the world's largest manufacturer of the vehicles, to develop a single platform to connect a wide range of services in the growing market for RVs. Auckland Airport posted a 17% gain in first-half profit to $165.9 million and said its strong performance gave it the confidence to tighten the range of its full-year guidance for underlying earnings.
3 Things Markets Will be Watching this Week
1. Local AU/NZ companies continue to report profit figures as earnings season is likely to dominate news flow.
2. Minutes from the last meeting of the Reserve Bank of Australia are out Tuesday and Aussie wage price data is published Wednesday.
3. Minutes from the last US Federal Reserve meeting are released Thursday.
Have a Great Day,
Team