RBNZ Delays OCR Hike | BHP – Buying the Dip

19 August 2021

Global markets were mixed overnight, as US markets (S&P 500 -1.1%) retraced as minutes from the last US Federal Reserve meeting re-ignited talks around the Fed reducing stimulus this year and tapering monetary policy early next year. The main takeaway in our view is that the Fed's goal on inflation was “close to being satisfied” with progress around job growth. 

Most sectors were in the red, led by led by Energy and Healthcare, the former dragged down by a -2% slip in WTI crude oil after a surprised increased in US gasoline inventories. Consumer Discretionary was the only sector up, after a number of strong results from Lowe’s (+9.5%), TJ Maxx (+5.6%), and Target, which beat expectations but still slipped -2.8%.

European (Stoxx 600 index up +0.1%) eked out a small gain as utilities and travel and leisure shares led the gains, offset by weakness from mining stocks as the market digested lower than expected inflation data from the UK – coming in at 2% for the month of July. 

Closer to home, the RBNZ announced it will keep the OCR unchanged due to the recent lockdown but added that it will likely continue with its plan to lift rates early – the NZX had a positive response. 

Mining Giant BHP shares slumped yesterday, falling -7% making it the worst performer of the day despite revealing a solid underlying result. BHP's profit from operations rose by 80% to US$25.9 billion, and its full year dividend came in at US$3.01 per share, representing a dividend yield of 8.7% on BHP’s current share price.

It was also confirmed that Woodside Petroleum will merge with BHP’s oil business to create a global top-10 energy company by production. Woodside will issue new shares to be distributed to BHP shareholders, with the newly expanded Woodside to be owned 52% by existing Woodside shareholders and 48% by existing BHP shareholders. The market reaction so far towards the merger hasn’t gone down very well with both BHP & WPL shares trading lower.. 

BHP is also ending its dual structure in the UK with the costs of enacting that decision reducing from around US$1.2 billion to between US$400m to US$500m.

Hurting BHP (and other mining stock sentiment) has been the price of iron ore, which has pulled back from more than 20% over the last month. Iron ore futures fell -5.7% on Wednesday and are trading a further -4.6% weaker this morning amid rising port inventories in China as well as increasing efforts to curb steel output. 

We think this pull-back is a "buy the dip" opportunity and remain BUY rated on BHP based on its diverse exposure to commodities with management upbeat on demand remaining supportive. This underpins BHP’s ability to pay attractive dividends, keeping in mind there is always commodity pricing risk. 


Australia & New Zealand Market Movers

The Australian market slipped yesterday (ASX 200 index -0.1%) with wild swings across the market on results and stock news flow.

Materials was the main laggard on the day weighed down by BHP, followed by energy stocks also performing poorly.
Financials were up with ANZ (+0.2%) after reporting its third quarter update its CET1 ratio sitting at 12.2% – comfortably ahead of APRA’s benchmark and  a $32m provision release – and 0.2% of its total loan portfolio on deferral due to current lockdown. 

CSL shares fell -1.5%, despite lifting net profit after tax by +10% guided that 2022 will be a transitory year with profits expected to decline 2% to 5% due to tight inventory levels (due to covid restrictions on plasma collection).

Dominos Pizza surged +7.1% to record high’s after boosting its final dividend +62% due to strong sales and profit growth.

The New Zealand market bounced back yesterday (NZX 50 index, +0.7%) on the back of RBNZ’s decision to delay interest rate hikes.

Gains were seen across the defensive side of the market benefiting from interest rates remaining the same, while strong earnings result from EBOS (+1.9%), Fletcher Buildings (-1.6%) and Spark (+0.5%) had mixed reviews. Covid induced lockdown continuing to impact companies which have operations restricted – partially impacting construction, retail and travel. 

Fisher and Paykel shares were up +2.4% after revealing a small drop in revenue for the four months of the current financial year (when compared with the previous year which represent peak pandemic demand) as Hospitalisation rates ease in parts of the world due to higher vaccination rates. 

3 Things Markets will be Watching this Week

  1. Key events this week include the RBNZ meeting where a 25-basis point hike is fully priced in and expected by the market.
  2. ​Locally Earnings season kicks into full gear. Major names include JB Hi-Fi, Contact Energy, BHP, Aristocrat, Coles, CSL, Oz Mineral, Woodside, EBOS, Fletcher Building, Spark, Auckland Airport, Sydney Airport – and quarterly updates from ANZ and Westpac. 
  3. ​Economic data from China, US Fed minutes and employment data in Australia.
Mining Giant BHP shares slumped yesterday, falling -7% making it the worst performer of the day despite revealing a solid underlying result.

Do You Want Daily Market Insights?

If you’re interested in staying up-to-date with the latest news and analysis on stocks, be sure to sign up to BlackBull Research.

1 Month Free Trial

Access our expert stock market research Free of charge with no obligation

Free 1 Month Free Trial

Unlock this article & access our expert stock market research

ASX, NZX & USD Stock Buy, Hold, Sell recommendations. Model Portfolios. Daily news and more