RBA Sticks to its Stance| NZ Refining

3 October 2018

Global markets were mixed overnight with the Dow at a record closing high, the S&P 500 flat and the Nasdaq down. In a speech to the National Association for Business Economics, US Federal Reserve chairman Jerome Powell once again spoke enthusiastically about the US economy.

Closer to home, the Reserve Bank of Australia (RBA) held its cash rate steady yesterday, as the central bank showed no signs that fallout from the royal commission and an accelerating house price decline will deter it from a patient policy stance. The RBA kept rates at 1.5%, and last cut the cash rate by 25 basis points in August 2016, a move that heralded the start of a record-breaking run of monetary policy inaction.

The RBA has stated that the next move in interest rates is more likely to be up than down, but has also said it is prepared to be patient as it awaits stronger wage growth to feed through to sustainably higher inflation. RBA governor Philip Lowe highlighted a softer housing market and tighter credit conditions, which saw the bank stocks sell-off. 

 

Stock in Focus: NZ Refining (NZR:NZ)
Shares in NZ Refining (NZR) have rallied back close to highs for the year at $2.26 a share, but still remain well below prices hit in early 2016. 

Both the Aussie dollar and Kiwi dollar have weakened of late, and we think a large part of the fall has been driven by the fact that both the RBA and RBNZ continue to keep interest rates low, while rate hikes are occurring in the US. The NZD is trading at 66 cents versus the USD after trading at an average of 73 cents for the first half of 2018. This should provide and uplift in NZR’s processing income as refining margins are priced in US dollar terms. 

In other recent news, NZR also released their interim result with a $2.8m loss, which was expected by the market due to a planned maintenance shutdown – that has not been done in over 15 years. 

We currently have a BUY (High-Risk) recommendation on NZR.
Members should look out for a full update on NZR to be released in today’s weekly report.

 
 

Australia & New Zealand Market Movers

The Australian share market sold off on Tuesday (ASX 200 index -0.75%) with banks and CSL dragging the market index back to a level last seen in mid-September. On the flipside, oil prices are trading at four-year highs and that worked to bolster the energy sector, with Origin Energy and Santos among the biggest gainers. Mining giant BHP was one of the best performers in the benchmark, in terms of market weight, with the commodity major also climbing higher. Lithium plays were standouts, with Orocobre surging 11.4% and Galaxy Resources up 7.2%.

 

The New Zealand market was virtually flat yesterday (NZX 50 index -0.01%) as the weakest business confidence in nine years and fears over future profitability weighed on stocks linked to the local economic cycle. The New Zealand Institute of Economic Research's quarterly survey of business opinion showed the worst economic confidence since March 2009, with firms experiencing weaker demand and a growing number of companies anticipating shrinking earnings. In stock related news, Danish producer DLF Seeds says its research capability makes it a strong potential acquirer of PGG Wrightson’s grains and seeds business. The firm is seeking clearance from the Commerce Commission for the $421 million purchase announced in August.
 

3 Things Markets Will be Watching this Week

1.             Trade related news-flow is likely to continue to feature in headlines.

2.             The Reserve Bank of Australia makes an interest rate decision on Tuesday.

3.             Important monthly US employment data (payrolls) is published on Friday.

 

Have a Great Day

Closer to home, the Reserve Bank of Australia (RBA) held its cash rate steady yesterday, as the central bank showed no signs that fallout from the royal commission and an accelerating house price decline will deter it from a patient policy stance

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