US markets (S&P 500 Index -1.0%) fell for a second consecutive day on Thursday, raising bets that the bearish case for US stocks remain intact. However, they are still on track to end the week higher after experiencing its biggest two-day rally since 2020 earlier in the week.
Utilities (-3.3%) and Real Estate (-3.2%) led all sectors into the red on Thursday, except Energy (+1.8%).
Investors now await the US Non-Farm Payrolls report which is released before US markets open on their Friday morning.
European markets (Stoxx 600 Index, -0.5%) closed lower on Thursday, after giving up early gains as high as +0.8%. The pound (-1.7%) and euro (-1.1%) followed the stock markets down lower.
Woodside Energy (WDS: ASX)
The ASX Energy index (+2.2%) rose on Thursday for its eighth consecutive session to a month high, largely on the back of gains made in Woodside Energy (+2.6%), which in turn is supported by climbing oil (+1.0%) prices. The move came as OPEC+ announced a 2 million barrels per day reduction to oil supply quotas, the upper-end of the 1m-2m range flagged in the lead-up to the meeting. Analysts believe the actual reduction in global oil supply will be closer to 1 million barrels per day because some countries are already producing well below their quotas so won’t be affected by the change. In response, the US said it would release another 10m barrels from its Strategic Petroleum Reserve (SPR) in November, perhaps with the US midterm elections in mind.
Australia’s largest petroleum company has booked gains of +9.0% over the past 5 trading days and +2.3% the past month.
At current levels we see Woodside as sensitive to downward movements in oil prices (which is still likely given central banks proclivity to hike rates even if it were to cause a recession) which could dampen demand over moving forward. As such, we would prefer to be buyers of Woodside at lower levels to adjust for more normalised oil prices. Investors should take advantage of any upcoming slip in oil price as a buying opportunity for Woodside.
Assuming our base case of oil being about ~$70/barrel over the medium term (slightly ahead of the 10-year average) we see Woodside paying out a still attractive ~6.6% dividend, while share price may be prone to some heavy selling if that were the case given that’s a ~24% drop from current levels ($92/barrel)
Australian & New Zealand Market Movers
The Australian market (ASX 200 Index, 0.0%) ended Thursday flat, with Energy (+2.2%) and Utilities (+1.1%) helping cover losses in Real Estate (-0.9%), and Consumer Discretionary (-0.8%) and Staples (-0.7%).
Energy stocks gained on a rally in oil (+1.0%), with the commodity now trading at three-week high of US$88.64 per barrel, after the announced oil production cuts from OPEC+. Whitehaven Coal (+7.2%) rose to a fresh high on the day.
Link Administration (+5.1%) spent a second day racking up significant gains on the possibility of a partial buyout.
Magellan Financial Group (-8.4%) was the worst performer of the day as the fund manager revealed that 11% of its assets under management had been liquidated in response to the turmoil that occurred in UK bonds last week.
The New Zealand market (NZX 50 Index, -0.5%) fell half a percent after a strong two-day rally. Pacific Edge (-4.0%) and Fisher and Paykel Healthcare (-2.6%) were among the leaders into the red, with the Heathcare (-1.8%) stocks performing poorly overall.
Gains from Delegat Group (+4.6%), Restaurant Brands (+3.0%), and The Warehouse Group (+2.2%) were not enough to pull the market into positive territory.
Pushpay (+3.6%) climbed on news that it had entered into an agreement with the United States Army Chaplain Corps, which would introduce the company’s software to more than 1 million new customers.
The Australian dollar (-1.4%) and New Zealand dollar (-1.3%) fell against the greenback, as the rate hikes from their respective central banks this week have done little to stop their currencies weakening further.
What Markets will be Watching this Week (UTC –4)
Monday
AU RBA Interest Rate Decision
Tuesday
US JOLTs Job Openings (AUG)
NZ RBNZ Interest Rate Decision
Wednesday
US Unemployment Change (SEP)
US Balance of Trade (AUG)
Thursday
AU RBA Financial Stability Review
Friday
Us Non Farm Payrolls (SEP)