Global stocks were lower overnight, with the US market (S&P 500 index -0.3%) down as investors shrugged off better than expected earnings results and focused on the Fed’s persistent dovishness.
Federal Reserve Chair Jerome Powell maintained that the central bank will continue its easy monetary policy, raising concerns around the sustainability of the economic recovery, and effects of rapid inflation being persistent. As a result, investors traded with a risk off tone with US treasury yield falling 5 basis points down to 1.30%. We would not read too much into this and some profit taking is to be expected after such a strong run in markets this year.
On the earnings front, Morgan Stanley’s second quarter earnings topped expectations but only closed up a modest +0.2% – but to put this in context its shares are up +35% since the start of the year. Of the 18 S&P 500 companies that beat analyst estimates for second-quarter earnings this week, the average earnings-per-share result was +18% higher than expected. But those companies saw their shares fall -0.58% on average after reporting given the market has performed so well this year, with the S&P index up +16%. Markets have been anticipating the current recovery in profits and we will be watching developments as they unfold.
Woodside Petroleum (WPL:ASX)
Woodside Petroleum (WPL) shares were down -1% yesterday following a slip in oil prices as well as the company releasing a weak second quarter update.
For the three months ended 30 June, Woodside reported a +4% quarter on quarter decline in production of 22.7 MMboe. This was due to scheduled maintenance activities and adverse weather impacts, and partly being offset by a strong quarterly performance at its Pluto operation. However, thanks to a 9% increase in delivered sales volume to 28.1 MMboe and higher prices, Woodside revealed a 15% quarter on quarter increase in sales revenue to $1,285 million.
We maintain our BUY rating on Woodside at its current level, as our Australian oil play, which should benefit from the recent recovery in oil prices (see below) and return to normal economic activity. However, we have a high-risk caveat given the volatility in the oil price, upcoming capital expenditure costs, and challenges the sector may face from an ESG point of view.
Australia & New Zealand Market Movers
The Australian market slid lower on Thursday (ASX 200 index -0.2%) as lockdown concerns weighed on the market, as Victoria entered its fifth lockdown.
Given the two largest centres are now in lockdowns and NSW’s current lockdown is likely being extended to much longer than initially anticipated, there are now now concerns on how the local economy will perform in the current quarter. Most sectors were lower, with Healthcare and Tech shares leading losses, while Materials and utilities were the only two sectors up due to being more immune to local lockdowns.
Spark Infrastructure jumped +6.3% after rejecting its recent takeover offer, but added it was open to engage with suitors on a potential transaction. Tech losses were led by buy now pay later stocks which extended their losses further on Apple’s entry into the market with Afterpay down another -2.3%, and Zip slumping another -5.6%.
The New Zealand market fell yesterday (NZX 50 index -0.4%) as the markets took a cautious tone digesting RBNZ's decision.
A2 Milk led the market lower down -3%, pulling back from its recent recovery rally. Many defensive stocks which were weaker on Wednesday made modest gains yesterday. Eroad shares climbed +3% after completing a $64m capital raise, to fund an acquisition.
3 Things Markets will be Watching this Week
- Key events this week include inflation prints in US, Eurozone, UK and NZ. US quarterly earnings season also gets underway.
- Covid-19 related development globally, and particularly in NSW.
- Australian employment data and Wednesday's RBNZ meeting.