Fed Sticks to its Guns | Z Energy Jumps

29 July 2021

Global markets were mixed overnight, (S&P 500 index +0.2%) with US markets ending higher with investors having mixed reactions to company results. 

Several US Federal Reserve officials have said the labour market and inflation have made progress toward preconditions for tapping the brakes on their robust support for the US economy. Officially however, the Fed, in its statement released after a two-day policy meeting overnight, kept the target range for its benchmark policy rate unchanged at zero to 0.25% and repeated language that inflation had run persistently below its long-run 2% goal. The Fed said it would give the market advanced warning of any upcoming tapering of stimulus.. 

Boeing shares jumped +4.4% after reporting its first quarterly profit in two years. Apple shares slipped -1.2% following their earnings beat adding supply constraints would affect iPhone and iPad sales growth, while Microsoft shares ended flat after reporting their profits appear to have been priced in by markets. Starbucks fell -2.9% after lowering its growth forecast for China. AMD (+6.0%), Visa (-1.6%) and McDonald’s (-1.9%) all delivered earnings beats but had mixed share price reactions.

The Hong Kong Market (Hang Seng Index +1.5%) was up, recovering slightly from its recent sell off. European stocks were higher (Stoxx 600 index, up +0.7%) as investors welcomed strong results.

Z Energy (ZEL:NZX)

Z Energy shares were up +3.2% yesterday following their investors providing the market with more confidence.
The highlight being Z believe long-term fuel consumption will not fall as sharply as government estimates, with healthy earnings and dividends guided over the medium-term, especially with added earnings stability with the conversion of NZ refining to an import model.

On the lower end of Z Energy’s earnings guidance, they anticipate to deliver a ‘minimum’ dividend of 19 cents per share over the foreseeable future which implies a pay out an attractive 6.5% dividend yield.   We remain BUY rated on Z Energy, as the local economy should support healthy levels of fuel consumption. However, due to volatility with fuel pricing affecting margins, gradual adoption of EV’s and sector facing ESG related challenges our BUY rating comes with a “High-risk” caveat.

Australia & New Zealand Market Movers

The Australian market was lower yesterday (ASX 200 index -0.7%) following a 4-week extension to Sydney’s lockdown and a weak lead from Wall Street.

Tech stocks were among the markets worst performers following similar falls globally from China’s crackdown.
The Materials sector was weaker as investors took profit on its strong run recently, BHP fell -1.7% and Rio Tinto was down -0.2% during the session but with the market yet to react to its half year result which was released after close.
The major banks were also weaker weighed down by the uncertainty the extended Sydney lockdown will have on the local economy – investors concerned upcoming buy back and dividends would be more conservative. Property was the only sector in the green, partly recovering from its lockdown related selloff.

Spark Infrastructure climbed +5.4% after Kohlberg Kravis Roberts infrastructure fund increased their takeover bid for the second time. 

The New Zealand market (NZX 50 index) ended the day flat as markets reacted to the China regulation fears. While companies exposed to the local economy performed better providing investors with security offering losses from companies with global exposure.

Tech shares led the losses Vista group down -3%, Pushpay falling -2.2% and Serko sliding -1.9%.
Travel related stocks recovered their recent losses Auckland International Airport up +0.9%, Air NZ climbing +0.7%, and Tourism Holdings up +1.3%. 

3 Things Markets will be Watching this Week

  1. Key events this week include huge week for earnings in the US with 180 members of the S&P 500 index  scheduled to provide quarterly updates including Tesla, Apple, Microsoft, Alphabet, Amazon, PayPal and Caterpillar.
  2. The latest US Federal Reserve decision Wednesday. Economic data; CPI (inflation) prints in the Eurozone and Australia, 2nd quarter economic growth (GDP) data in the US and Eurozone.
  3. Locally, earnings season kicks off with Rio Tinto’s 1st half result along with a host of quarterly production reports and AGM’s to be held including Macquarie Group, Mainfreight and Ryman Healthcare.
Global markets were mixed overnight, (S&P 500 index +0.2%) with US markets ending higher with investors having mixed reactions to company results.

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