A Record Quarter | New Zealand Refining

2 July 2020

Global markets were mixed overnight, as the US market (S&P 500 Index +1.5%) rose again to close out its strongest quarter in more than two-decades as it jumped 20%. The S&P 500 is just 8% off its record high after making a rapid rebound post experiencing one of its worst quarters to date.

Investors are parsing an array of factors that could weigh on stocks in the months ahead, including potential delays in reopening parts of the US economy and sky-high stock valuations in some sectors, However, this has largely been offset by record amount of stimulus being pumped into the economy and investor enthusiasm, driven in part by recent economic data that continues to come out better than expected.

Driving much of Wall Street’s strong second quarter were shares of companies benefiting from the millions of people staying home. like Amazon  and other retailers with a strong online presence. Major technology companies with strong balance sheets and the resources to weather an economic downturn have been favoured by investors.
Ironically, the strong gains have come as bankruptcy filings in the US are running at their fastest pace since 2013 (approaching 3,500 year to date), making the strong gain in equities one of the most 'questionable' rallies in recent history.
 

New Zealand Refining (NZR:NZ)

NZ Refining  (NZR) shares slid lower last week after releasing plans to simplify its operations and focus on supplying fuel into Northland and Auckland, also weighing up a staged transition to an import terminal.

This comes after a drastic drop in demand for refined fuels, as the refiner has to adapt to a future where refining margins are expected to remain near historical lows for an extended period of time with demand for fuel volumes likely not rebounding back to pre-covid-19 levels any time soon. Jet fuel being a major part of their business is down at 25% of pre-covid levels and set for a longer path of recovery as international travel remains heavily restricted.

In light of recent events, we maintain our HOLD on the basis that GRM (gross refining margins) are more likely to remain weaker (compared to recent historical lows) with weaker than usual demand over the medium-term that will offset the benefits from recent maintenance work carried out.

   
Australia & New Zealand Market Movers

The Australian market rose on Tuesday (ASX 200 +1.4%), reflecting a better-than-expected lead from Wall Street and optimism over news that Queensland is to reopen its borders, and New South Wales is also easing lockdown restrictions as well. Victoria on the other hand is recording 64 new cases experiencing its own second-wave and is tightening travel restrictions. 

The energy sector was the best performer on the day after a lift in oil prices, but overall the sector has been one of the the worst affected by covid-19. WiseTech shares dropped -2.2% after the freight logistics software business said its founder and chief executive, Richard White sold 2.4m shares in the business for $45.8m.

The New Zealand market rose again yesterday (NZX 50 Index +1.8%) on the back of a strong lead from Wall street, and Fisher and Paykel healthcare charging up another +6.3%, (after  a strong Monday) to be the first Kiwi-based company to cross $20 billion in market capitalisation.

Investor sentiment was more upbeat for the day with riskier stocks performing better, with the likes of Fletcher building up +4.8% after announcing it would make an early repayment of US$300m of its most expensive debt, USPP notes lowering funding costs by $17m per annum. The major retirement village operators  all experienced gains for the day, while SkyCity Entertainment posted the day’s largest drop, falling -4%.
 

3 Things Markets Will be Watching this Week

  1. ​​​​Covid-19 newsflow around a second wave and re-opening of economies remains front of mind.
  2. ​​Key US data including monthly employment numbers are released at the end of the week
  3. Minutes from the last US Federal Reserve meeting ​will also be released this week. 

Have a Great Day,
 

Team

The US market (S&P 500 Index +1.5%) rose again to close out its strongest quarter in more than two-decades as it jumped 20%

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