Powell Gets Hawkish | Refining NZ

2 December 2021

Global markets were lower overnight, US markets (S&P500 -1.9%) after Federal Reserve Chair Jerome Powell weighed an earlier end to bond tapering and Moderna's CEO predicted existing vaccines will struggle with Omicron. 

Federal Reserve Chair Powell acknowledged that inflation may be more than transitory and pointed to a potential tightening of monetary policy, reducing the pace of monthly bond purchase at a quicker rate than the $15 billion-a-month schedule announced early November – now that the economy is in a strong position, shifting the Fed's focus to combat inflation. 

Fuelling the decline, Moderna CEO Stephane Bancel said that he expects existing vaccines to be less effective against the new variant. This resulted in harsh selling across the board, with telecommunications, materials and industrial sectors hardest hit.

European Markets (Stoxx 600 index -0.9%) weighed down by Omicron concerns and weak crude oil prices causing travel stocks to lead losses. High energy prices had lifted Eurozone inflation to +0.8% month on month and a record  annualised rate of +4.9% in November.

Refining NZ (NZR:NZX)

Refining NZ successfully raised $39m from existing institutional shareholders and large retail shareholders and is seeking another $5m from eligible investors (with applications opening 2 December). The funds will be used to  fulfil signed and under negotiation private storage contracts upon its shift to an import terminal in April 2022. 

Private storage capital expenditure is expected to total NZ$55m and includes contracts that have been signed as well as those NZR is still negotiating. According to the company, the private storage contracts will contribute ~$110m (in real terms) over an initial 10-year.

We remain HOLD rated on Refining NZ.


Australia & New Zealand Market Movers

The Australian market edged higher yesterday (ASX 200 index +0.2%), as investors were more cautious.
Travel stocks were the best performers only marginally offsetting heavy losses across the last two sessions.

Orocobre surged +7.9% after saying it expects demand to outstrip supply for battery grade lithium at its AGM. Likewise rare earth miner Lynas rose +4.3%. 

APRA announced higher capital requirements for Banks especially against interest only loans, which saw mixed results amongst the banks with Macquarie rising +1.4% confirming they can cover it. 

While most sectors were in the red, losses were mainly mild other than travel and tourism stocks and retail real estate companies likely to feel the brunt of any restrictions.

The New Zealand market was up on Tuesday  (NZX 50 index +1.5%), bouncing back strongly recovering most of the losses over the prior two sessions.

Yield plays were generally stronger, Meridian Energy (+5.8%), Spark (+5.6%) Mercury (+2.9%), and Argosy Property (+4.6%) benefiting from end of month portfolio rebalancing.

NZ travel stocks weren’t as harshly sold off so continued to descend lower amidst concerns regarding omicron with Air NZ and Sky City both down -0.7%. While a broker upgrade saw Auckland International Airport buck the trend rising +1.5%.  

3 Things Markets will be Watching this Week

  1. Key events this week US nonfarm payroll, the latest CPI data in the Eurozone and PMI data in China.
  2. Developments around the Nu variant of covid will be dominating headlines. 
  3. Locally, Australia’s third quarter GPD numbers and ANZ’s latest Business Confidence reading in NZ. Earnings release from Oceania Healthcare and AGM”s from Lynas, Orocobre, Synlait and Premier Investments. 
Global markets were lower overnight, US markets (S&P500 -1.9%) after Federal Reserve Chair Jerome Powell weighed an earlier end to bond tapering and Moderna's CEO predicted existing vaccines will struggle with Omicron.

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