US markets (S&P 500 index +0.4%) were up overnight in a choppy session following the release of the Fed’s June meeting minutes, with the index posting its third daily gain in a row.
The minutes were unsurprisingly hawkish as the Fed remains set on hiking the policy rate by either 50bps or 75bps at the upcoming meeting later this month. The market is pricing in an 80% chance of a 75bps hike, as the Fed sees a restrictive policy stance as warranted given the strength of inflation and tightness in the labour market. Highlighting where Fed officials saw the balance of risks at present, the minutes flagged the possibility of an “even more restrictive stance” if elevated inflation pressures were to persist.
European Markets (Stoxx 600 index +1.7%) closed higher after Norwegian oil and gas workers ended their strike, lessening energy supply chain concerns. Technology, media, and retail shares led gains on an upbeat day.
Woodside Energy (WDS.ASX)
(10-year WTI Crude Oil Price)
Woodside Energy shares slipped -5.8% yesterday after a steep drop in the oil price, as investors fretted over the fear a recession would dampen demand for crude oil. This type of volatility is to be expected for a commodity stock, but the new merger with BHP’s energy assets makes WDS well leveraged to take advantage of oil prices at their current elevated levels (still well above its 10-year average). The merger means WDS has much larger scale of operations and a very low-cost model. We anticipate a mild recession would dampen demand over the near term, but not cause a major commodity price crash, leaving WDS in a position to pay attractive dividends over the medium-term.
We are BUY rated on WDS as our preferred Aussie Energy play.
Australia & New Zealand Market Movers
The Australian market (ASX200 index -0.5%) was lower despite most stocks trading higher as they tried to recover from the recent sell-off. Fears of recession weighed down on commodity prices (particularly oil and iron ore) which saw the energy and material sectors drag the market lower on a softer demand outlook. This more than offset a strong rebound in tech and real estate stocks which led gains.
The New Zealand market (NZX 50 Index +1.6%) was up on Wednesday marking its third positive day in a row with a strong finish towards the end of the day, with most stocks rising. Investors saw the sell-off as a bit over-done, and decided to pick up growth names. Eroad, one of the hardest hit surged +14% on no news as it recovers from its harsh sell-off. Likewise, there were notable gains from Fisher & Paykel Healthcare (+3.4%), Pushpay (+3.2%), and Fletcher Building (+2.8%) who have all had a rough start to 2022.
Tourism Holdings was up +1.6% yesterday and is now up +11% this week since announcing its proposal to divest assets to improve its chances of gaining approval for the Apollo takeover.
3 Things Markets will be Watching this Week
- Highlights this week include US nonfarm payrolls (employment data), Fed meeting minutes and the latest inflation data in China.
- Locally, the RBA meets with a 50bp lift to the cash rate expected, which would take it to 1.35%.
- Home loans and building approvals in Australia are also due this week along with Goodman Property’s AGM and a Q2 sales update from Summerset.