RBA Stays Dovish | Woodside Petroleum

5 November 2021

Global markets were touch higher overnight, as the US market (S&P 500 index, +0.4%) continues to climb higher as earnings season continues to impress.

Under-Armor shares soared +16.3% after the athletic retailer hiked its annual outlook, revealing the company is seeing progress in improving its brand image. DuPont de Nemours rallied 8.8% after beating on the top and bottom lines of its quarterly results and Estee Lauder popped 4.1% on better-than-expected earnings and revenue. Pfizer shares rose 4.2% after the drug maker’s third-quarter profit topped expectations, as well as lifting its 2021 revenue and earnings outlook.

As of Tuesday at the close, according to FactSet, 83% of S&P 500 companies that have reported earnings have topped analysts’ earnings expectations.

European Markets (Stoxx 600 index, +0.1%) were more muted as earnings results were subdued and the market awaits guidance around the interest rate path from the US Fed and the Bank of England later in the week.

Closer to home, the RBA announced that will scrap it guidance for interest rate hikes in 2024, and now state they will hike rates when they see inflation is sustainably within the 2% to 3% range, and will also require wage growth to be materially higher than it is currently. Given the latter, we believe RBA should be increasing rates but possibly at a slower and more conservative rate than other central banks (particularly when compared with the RBNZ) – and we see the possibility of one rate hike late next year (which is still much sooner than what RBA had guided for earlier).


Woodside Petroleum (WPL:ASX)

Woodside Petroleum shares have pulled back over the last week or so, but were initially up last week after revealing it will build  A$1 billion hydrogen plant south of Perth to export low-carbon energy overseas and boost renewable energy supplied in Western Australia.

The aim of the project is to diversify Woodside’s energy offering and produce low cost, low carbon hydrogen-based energy for consumers and support renewable power generation in WA. Woodside has a proud track record as an Australian oil and gas producer and their LNG exports will continue in helping Asia reliably meet its energy needs while reducing greenhouse gas emissions for decades to come. Now, they intend to use our skills and financial strength to add new energy products and lower-carbon technologies and services to our portfolio, which can be scaled to meet customer demand.

We remain BUY rated on WPL, as it still appears attractively priced, especially based on current oil price levels.

Australia & New Zealand Market Movers

The Australian market was down yesterday (ASX 200 index -0.6%), after the RBA implied it would most likely increase rates earlier than the previous guided target of 2024, spooking the market which has become accustomed to low rates remaining in place much longer than most other central banks.

Materials were hardest hit due to the above news as well as a -3.6% slip in iron ore prices, likewise the Energy sector performed weakly.

Financials which normally would benefit were down, dragged lower by Westpac slipping -2.7% following a heavy fall on Monday, as a number of brokers lowered their target price for the bank and some downgrading the stock stating the challenges are likely to persist over the near-term. Insurance Australia Group led losses sinking -7% following server storms and events caused the insurance company to downgrade its insurance margins down to 10% to 12%, dragging insurance companies lower.

Goodman Group bucked the trend climbing +5.6% after upgrading its earnings guidance  from 10 to 15 cents per share.

The New Zealand market was down on Tuesday (NZX 50 index -0.3%). Yield sensitive stocks which make up the bulk on NZX  were generally lowering in anticipation of RBA’s interest rate decision which was released just before close, Property stocks and gentailers both were weaker.

Constructions stocks linked to the property market were weaker, despite strong building consents for the 12-months to September coming in at the second highest on record.

Kathmandu rose +1.3%, in anticipation of easing lookdown restrictions heading in December. 

3 Things Markets will be Watching this Week

  1. Key events this week include RBA announcement, Fed meeting this week, Bank of England announcement, and employment data (nonfarm payrolls) in the U.S.
  2. US Third quarter Earnings continues with Pizfer, T-Mobile, Uber, and Lyft among those reporting this week
  3. Locally, earnings from Westpac, Goodman Group, Amcor and Z Energy, quarterly updates from and AGM’s being held by Worley, Domino’s Pizza, Qantas, Spark NZ and Precinct Properties.
Global markets were touch higher overnight, as the US market (S&P 500 index, +0.4%) continues to climb higher as earnings season continues to impress.

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