Daily Market Insights

Global markets were mixed on Friday, with the US market ending slightly lower as Technology stocks were once again the bright spot.
 
The outlook for the price of oil is back in the headlines in recent times, with oil notching its first weekly gain in a month last week. The rebound has come on expectations the Organization of the Petroleum Exporting Countries (OPEC) will extend an agreement to curb production when the group meets later in the month.
 
Oil Price (West Texas Crude USD)

OPEC officials in recent days have suggested the possibility of an extension that would run past the end of the year, as well as deeper production cuts. The Wall Street Journal also reported Friday that some OPEC members hinted at the possibility of bringing new participants, including Turkmenistan and Egypt, into the agreement, helping to temper losses for oil prices. Market expectations are for an extension of the production cut agreement between members of OPEC and some non-OPEC producers, including Russia. In saying that, the detail will be key in terms of an immediate price reaction.
 
As we have discussed in the past, there have been a number of positive developments for the oil industry since the turmoil experienced in early 2016, including OPEC’s dramatic change of stance to curb oil output. However, our view has been that prices will cap out at around the $50-$60 level in the near term primarily due to the impact of US shale gas producers increasing production. As a result, we bought selected ASX oil exposures in April 2016 – namely Woodside Petroleum (WPL.AX) has been our top ASX energy play.
 
Closer to home, both the ASX and NZX reversed recent gains on Friday as investors took profits before the weekend. In terms of stock news, Z Energy (ZEL.NZ / ZEL.AX) shares are higher post its full year 2017 result released last week, which we discuss below.

 
Stock in Focus: Z Energy (ZEL.NZ / ZEL.AX)
Last week Z Energy, reported it had more than tripled its annual profit after acquiring Chevron New Zealand's Caltex and Challenge brands, and the share price response has been positive.

Profit for the 2017 financial year jumped to $243m, or 61 cents per share, in the 12 months ended March 31, from $64 million, or 16 cents, the year earlier. The latest earnings were boosted by 10 months of contribution from the Chevron acquisitions – the transport fuel company bought the assets for $785m, making it the country's biggest petrol retailer.
 
Z Chief Executive, Mike Bennetts, said the result highlighted the importance of the Caltex acquisition to the continued growth of the business. “The result includes $17 million of synergy that we’ve been able to deliver from efficiencies through combining these two companies and we’re confident we will deliver approximately $40 million of total synergy by the end of this financial year… Z’s focus will be on delivering the synergies from this transaction and then increasingly to delivering value through the company’s next iteration of its strategy”.
 
Members should look out for our full update on Z Energy to be released in our weekly report. 
 
 
Australia & New Zealand Market Movers
The Australian share market was lower on Friday (ASX 200 index -0.7%) and only miners narrowly dodged the broad sell-off on the Australian market as the Budget bounce unravelled. In stock specific news, gold mining giant Newcrest has lowered its 2017/18 production guidance for the Cadia gold mine in NSW due to damage from last month's earthquake. Newcrest said on Friday it expects to restart production from both underground panel caves in the first quarter of 2017/18, subject to permission from authorities.

 
The New Zealand market retraced on Friday (NZX 50 index -0.5%) as some investors opted to take profits on stocks like A2 Milk and as sentiment was weighed on by a slide in global markets, although both Xero and Z Energy continued to push higher after positive results earlier in the week. In terms of economic data, declining sales and a drop in prices in Auckland in the latest REINZ data indicate the region’s market has passed the peak of its cycle. Auckland sales activity was down by 8.3%, once seasonally adjusted in April as compared to March, according to new REINZ data out on Friday.
 
 
3 Things Markets Will be Watching this Week
 
1.                 The Reserve Bank of Australia releases minutes from its last meeting on Tuesday.
2.                 Australian employment data is released Thursday
3.                 NZ retail sales data is published Monday.  

Have a Great Day,

Team