Global stocks hit an all-time high on Friday (S&P 500 index +0.2%), bond yields retreated to a three-month low, and the VIX volatility index relaxed to the lowest level since February 2020 as focus turns to the outcome from this week's meeting of the US Federal Reserve.
The key price action on Friday night was a broadly based rebound in the USD. The dollar repositioning shows some nerves heading into the Fed policy update early Thursday morning NZ time about what might be said at the press conference on tapering. The market is increasingly backing the Fed’s view that high inflation will prove transitory and therefore will be very slow to remove the current level of policy stimulus.
The information technology and financial sectors gained Friday, while healthcare and real estate lagged. The large cap tech stocks were mostly little changed despite lawmakers releasing bills aimed at making the big tech companies divest parts of their businesses.
European stocks rallied, with the Stoxx 600 index posting for a fourth weekly increase, as investors relished the prospects of continued policy support.
New Zealand Refining (NZR:NZX)
New Zealand Refining shares have had a horrible few years, although have started turning over the month as some level of certainty on the businesses future has been confirmed.
Z Energy (a major shareholder and NZR's largest customer) agreed to close its crude oil refinery and convert the site into an import terminal only, now requiring final sign off from directors and other shareholders. Confirmation of agreement with Z Energy is a significant step towards the conversion to an import terminal. Post-conversion, the company is setting up to generate solid cash flows, particularly from 2023 to 2025 when its take-or-pay arrangements are at their peak and it faces no volume risk.
We currently have a HOLD rating on NZR and members should look out for a full update in our weekly report.
Australia & New Zealand Market Movers
The Australian market inched higher on Friday (ASX 200 index +0.1%) as materials and technology stocks helped the ASX to a record close for a second consecutive day. Tech stocks were the best performers on the local market in the last week, playing catch up after a disappointing few weeks.
The good news in Australia is that the lockdown in Melbourne has ended, albeit with various restrictions remaining, after the number of new cases trended down.
The major iron ore miners gained ground Friday as an investment bank raised its forecast for the price of the steel-making commodity, citing strong Chinese demand and a lack of supply from lower-cost producers, with Fortescue Metals up +1.7% and BHP +1.4% higher.
Domino’s Pizza was up +1% as it announced the acquisition of the Taiwan territory for ~A$79m consideration (cash and debt free basis), implying a ~26x multiple of earnings (NPAT ~A$3m). Taiwan has 157 stores (19 corporate, 138 franchised, 2 commissary/warehouses) and management have aspirations for >400 stores (increases Group aspirations to ~5,950 or ~7%) by 2030/32.
Premier Investments was up a touch (+0.4%) after releasing a string trading update – with retail operating earnings up 82-92% year on year. Online continues to perform strongly, driving both top-line and margin (more profitable) improvement, and margin mix should continue to improve as globally markets such as the UK and Asia reopen for Smiggle.
The New Zealand market (NZX 50 index +0.3%) eked out a gain on Friday as SkyCity (+1.4%) upgraded its full year profit forecast. SkyCity’s guidance was ahead of expectations, with the resilience and strength of domestic gaming continuing to positively surprise.
The Canterbury floods have seen Tower lift its annual assumption for ‘large events’ to the maximum annual level of $14.0m (versus $9.7m). However, the company reiterated existing dividend guidance of 5.0-5.5 cents per share (equating to a 7% cash yield).
3 Things Markets will be Watching this Week
- Key events this week include the latest US Federal Reserve decision.
- NZ 1st quarter GDP data is due on Thursday, as well as Australia's latest employment data.
- Both Auckland Airport and Sydney Airport are due to release monthly updates, while Pushpay and Z Energy are scheduled to host AGM’s this week.
