Global markets were mixed overnight, although a Tech rally saw the Nasdaq hit a record high as reassuring comments from Texas Instruments about global chip demand blunted the impact of weak earnings reports from Boeing and Caterpillar. While it is early days, earnings in the US generally look to be coming in ahead of market expectations.
Stock in Focus: NZ Refining (NZR:NZX)
NZR shares dipped after delivering a weak operational update for May and June 2019. NZR reported $32.2m in processing fees for the period, this was down -35.7% from the previous two-month period (March and April 2019), largely due to weaker gross refinery margins (GRM) and lower refinery throughput volumes.
Gross refining margins were significantly weaker in the May/June period at US$4.36 per barrel due to gasoline and naphtha cracks coming under pressure. This was well below the previous two-month period and four-year historical average, with an uncertain outlook around a recovery to more attractive levels.
In light of recent events, we have changed our recommendation on the basis that GRM are more likely to remain weaker (compared to recent historical levels) offsetting any increase in throughput volumes from last year’s maintenance works. Also, we have lost confidence in our view on USD strength, with the exchange rate expected to remain rangebound around current levels. A strengthening USD vs the NZD was one of the catalysts driving our positive recommendation in the past, and we have decided to exit our NZ model portfolio holding in what has been a poor performing NZR.
We have lowered our rating on NZR to a HOLD.
Australia & New Zealand Market Movers
The Australian share continued to rally on Wednesday (ASX 200 index +0.77%). The local sharemarket has soared in the first half of the year, rising more than 19% year-to-date and recording its best first half since 1991. Interesting, data showed the fall in Sydney property prices slowed in the June quarter, suggesting the market could bottom out without the median price dropping below $1 million.
The New Zealand market retraced yesterday after hitting an all-time record high (NZX 50 index -0.50%). Large companies such as A2 Milk, Ryman, and Fisher & Paykel Healthcare gave back some of there recent gains. Outside the benchmark index, NZ Windfarms has canned its planned asset sale and instead plans to buy back as much as 5% of its shares.
3 Things Markets Will be Watching this Week
- US Corporate earnings season continues this week with tech names Amazon, Alphabet, and Facebook among those to report.
- The latest US economic growth (GDP) figures are published at the end of the week.
- Reserve Bank of Australia governor Lowe makes a speech on Thursday.
Have a Great Day,