On the Fence with Commodities

17 March 2023

Stock in Focus: Woodside Energy (WDS.ASX)

We did well downgrading Woodside Energy and halving our position in the Australian Portfolio in November 2022 as the price of oil was unsustainably high. We still anticipate further weakness in commodity prices for the remainder of the year as we near a slowdown in activity from the rate hike induced inflation.

Woodside is our preferred energy exposure on the ASX and we would be buyers are slightly lower levels. Investors can take respite in a reasonable dividend return over the challenging period when commodity prices are lower, yet for now we remain Neutral.

WTI Crude Oil Price


New Zealand Market Movers 

The New Zealand market (NZX50, -0.7%) was down as bank woes continue to haunt global markets, while locally NZ’s GDP slipped -0.6% in the fourth quarter of 2022.

NZ’s GDP decline came in worse than expected. We don’t this should come as a major surprise given RBNZ’s rate hike’s to slow down activity to bringdown inflation. Dairy giant Fonterra was up strongly after revealing a strong half year result on favorable pricing, with an upbeat guidance forecasting 2023 full year earnings to come in between 55 to 75 cents per share. Remain netural — note increased costs for farmers in the not-too-distant future…


Australia Market Movers 

The Australian Market (ASX200, -1.5%) fell, but managed to recoup some of the losses later in the session after 65,000 new jobs were created in the month of February.

Global markets remain jittery with energy and materials hardest hit and most linked to economic sentiment, local bank shares also weaker. The sell-off was mostly broad-based with investors flocking to healthcare for safety.


One chart for the US, where the S&P 500 rose +1.76% today. The chart is the Fed’s balance sheet, which ballooned during Covid (all that stimulus) and the Fed has been working hard towards reducing ever since. Just one problem: the recent collapse of Silicon Valley Bank and the related collapse of Signature Bank had the unfortunate consequence of increasing the Fed’s balance sheet yet again, undoing +50% of the work that Powell and company have done since raising interest rates. It’s a little like “one step forward, two steps back” – how much more work does the Fed have to do now to yet again reduce its balance sheet? We suggest it implies a longer and higher world of interest rates. The irony, of course, is that it was high interest rates that caused the collapse of SVB (the bank’s deposits were mostly in low-interest yielding bonds, which it had to sell at a discount to pay out depositors). In terms of fiscal policy the bailout felt necessary because of the contagion risk, but it places us, economically, in a harder position for longer. 

We wrote up Occidental Petroleum yesterday – shares promptly went up +3.94%. We’d love to say that it’s due to our newsletter, but it’s more likely due to Warren Buffet’s Berkshire’s +$500M spending spree the last three days buying up stock in OXY, which brings Berkshire’s ownership to +23.1% (it has regulator approval to buy 50% of OXY). It’s a vote of confidence by the world’s best investor – we will take it. Retain buy.

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