Global markets tumbled lower overnight, (S&P 500 index -1.6%) as the rapid spread of the Covid delta variant spooked markets. This saw investors question the economic recovery which has fueled the equity rally for most of the year. Additionally, tensions between the US, UK and China escalated after the Five Eyes countries announced that the Chinese government has been the mastermind behind a series of malicious ransomware, data theft and cyber-espionage against public and private entities – including a Microsoft Exchange hack earlier this year.
Investors also moved into safe-havens, with the US 10-year treasury yield down -11 basis points to 1.18% and hitting fresh 5-month low.
All sectors were in the red with Energy, Financials and Industrials being the worst performers. WTI crude oil slumped -7.5% as OPEC+ agreed on lifting supply as well as easing demand outlook.
European stocks were down overnight (Stoxx 600 index, -2.3%) with banks energy and travel shares leading losses.
Z Energy (ZEL:NZX)
Z Energy (ZEL) shares jumped +0.7% yesterday, after releasing their first quarter update highlighting they are maintaining market share with fuel volumes (excluding Jet fuel) largely inline with pre-covid levels. Despite margins tightening due to rising crude oil prices and mix – Z Energy reaffirmed its 20202 full year operating earnings (EBITDAF) guidance of $270m to $310m with a dividend of 19 to 23 cents per share.
We remain BUY rated on Z Energy, as the local economy should support healthy levels of fuel consumption to deliver healthy earnings and dividends (~6.7%) for investors. 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 fell yesterday (ASX 200 index -0.9%) as concerns about rapid spread of covid both locally and around the globe heightened.
Energy and Materials stocks led losses, the former falling on lower commodity prices and fresh mobility restrictions.
After market ANZ announced a $1.5 billion on market share buyback, which is interesting timing given lockdown restrictions in Australia.
Telstra confirmed it has been in discussions about a potential deal to make an investment in a telecommunications company, Digicel Pacific in the South Pacific region in partnership with the Australian Government.
The New Zealand market was lower on Monday (NZX 50 index -0.2%).
Travel related stocks were heavily affected given the spike in covid-19 cases and extended lockdown restrictions, Tourism Holding slumping -3.6%, SkyCity fell -3%, and Air NZ down -1.3%.
Contact Energy was higher after releasing strong operating stats for the June months, helped by strong hydro generation and higher commercial pricing.
3 Things Markets will be Watching this Week
- Key events this week include US earnings (Netflix, Johnson & Johnson, Coca-Cola), ECB July rate decision, Eurozone Manufacturing PMI.
- Covid-19 related development globally, and particularly in Australia (NSW and Victoria Lock down).
- RBA Minutes and quarterly updates from Australian miners.