Global markets were higher overnight in what can be best described as bullish yet cautious optimism. The three major US indexes are trading at record levels, powered by gains in financial, technology and industrial stocks, with investor focus on the US Federal Reserve's policy meeting later in the week.
Closer to home, while the ASX was up yesterday following positive leads from Wall Street, the NZX continues to be weighed down as we move into election week. As mentioned yesterday the general election on Saturday appears too close to call which is creating short term uncertainty for investors.
Stock in Focus: NZ Refining (NZR.NZ)
Shares in NZR were lower yesterday as it announced it has suffered a leak in its pipeline from the refinery to Wiri, Auckland which will need to be replaced. NZR have said that while too early to estimate with absolute accuracy, it expects that the revenue impact will be of the order of $10m to $15m.
This is clearly negative news, although given its one-off nature we would not expect it to have a long-term impact on earnings. The news comes shortly after NZ Refining had also announced half year profit results which were well received by the market up +207% on the same period last year to $35.2m. The result was credited to healthy refining margins and a strong operational performance.
As we have discussed in the past NZR’s profitability is driven by volatile factors, such as the NZD/USD which remains stubbornly high. We continue to believe the next leg higher in terms of NZR’s profitability will largely come from currency gains given our view that the NZD will move lower versus the USD over the medium term.
We currently have a High-Risk Buy rating on NZR.
Members should look out for our full update on NZ Refining to be released in tomorrow’s weekly report.
Australia & New Zealand Market Movers
The Australian share market started the week higher (ASX 200 index +0.45%) as strong appetite for the banks on Monday bolstered the ASX, with investors taking their lead from a record-breaking Friday night on Wall Street. In stock news, Evolution Mining announced Monday it would sell its Edna May gold mine in Western Australia to Ramelius Resources for $90m.
The New Zealand market was once again in slight negative territory (NZX 50 index -0.05%) at the start of election week. New Zealand Refining and Air New Zealand dropped following a pipeline leak, while A2 Milk Co rose. Given the pipeline leak has disrupted jet fuel supplies at Auckland International Airport, the news has also weighed on the Air NZ share price (as well as NZ Refining). Air NZ has stated that the disruption isn't likely to have a material impact on earnings although a number of flights were cancelled on Monday and disruptions could continue for a week
3 Things Markets Will be Watching this Week
1. The polls in NZ as we head towards the general election on Saturday.
2. The US Federal Reserve is due to make a policy announcement Thursday morning AU/NZ time.
3. Minutes from the latest Reserve Bank of Australia meeting are released on Tuesday.
Have a Great Day,
Team