Global markets were mixed overnight as the London market retraced while earnings optimism as well as a spate of merger activity bolstered sentiment in Europe and Wall Street. Markets also edged higher after the US Senate voted to end the shutdown of the US government. The Senate agreed 81 to 18 to end debate, a procedural move that clears the way for a temporary funding plan through February 8 – the culmination of days of deal making.
The price of oil is trading at its highest level since December 2014 and has trended higher since mid-2017. This is clearly a positive for energy producers such as Woodside Petroleum (which we discuss below) and is also a negative for sectors such as airlines (given oil/ jet-fuel is a major cost for airlines). If the relatively oil high persists it could also have an inflationary impact on the global economy.
Stock in Focus: Woodside Petroleum (WPL:AX)
Woodside shares retraced last week after strengthening oil prices failed to offset the impact of weaker production in the December quarter and as analysts weighed the firm's output guidance.
Woodside reported an 11.1% dip in full-year production to 84.4 million barrels of oil equivalent (MMboe) for the 2017 year. Whilst this was a disappointing decline on 2016, it was in-line with its revised guidance. Production is expected to increase next year, with management guiding to 85 to 90 MMboe.
Management also expects that stronger oil prices experienced in the fourth-quarter will flow through to higher realised LNG prices in the first-quarter of 2018. In addition to this, due to an increase in annual LNG production it anticipates being cash flow neutral at $35 a barrel in 2018. WPL has been our preferred ASX energy play since we initiated our buy recommendation in April 2016.
We currently have a BUY rating on WPL.
Members should look out for an updated report on WPL to be released in an upcoming weekly report.
Australia & New Zealand Market Movers
The Australian share market started the week on a weaker note (ASX 200 index -0.23%) and the ASX 200 market index closed below the 6000 level for the first time since early December. The banking sector was biggest drag on the benchmark as CBA shares fell 1.2% to $78.85, with Citi downgrading the lender to sell. In stock moves, Domain shares shed 17% following the shock resignation of its CEO. Domain was recently spun out from Fairfax Media, the publisher of The Sydney Morning Herald and the Australian Financial Review, which ended the day down 9.7%.
The New Zealand market traded higher on Monday (NZX 50 index +0.55%) led higher by Ryman Healthcare and A2 Milk Co on some positioning ahead of upcoming earnings, while Infratil and Fonterra Shareholders Fund dropped. Investors are positioning themselves ahead of the earnings season to come in February, when roughly two-thirds of the benchmark index will report either first half or annual earnings.
3 Things Markets Will be Watching this Week
1. US earnings season continues – with a particular focus on company comments around the impact of US tax cuts.
2. The US political deadlock which has resulted in a government shutdown.
3. The European Central Bank makes an interest rate decision Friday.
Have a Great Day,
Team