Global markets were higher on Friday after the announcement of a partial trade deal between China and the US triggered a rally in markets.
The US & China have struck a partial deal covering agricultural purchases, currency and some aspects of intellectual property protections, and averting a threatened tariff hike, but President Donald Trump said more needed to be negotiated. While the news will likely see a relief rally in the near term, we see the trade battle between the US and China as a long term issue.
This week also sees the start of 3rd quarter US earnings season, with the major US Banks the first to report quarterly profits. During earnings season, investor focus usually shifts away from broader economic issues and back to company announcements around profitability.
Stock in Focus: Woodside Petroleum (WPL:ASX)
WPL shares have been heading downward recently due to negative oil price movements, and escalations over the US-China trade which has a negative impact on oil producers.
WPL’s shares were also lower after delivering a weak profit result for the first half of the 2019 financial year despite previously guiding to weaker production levels due to major maintenance works taking longer than expected. WPL’s net profit after tax for the half came in at $419m, which was down -23% from last year. This was due to the impact of tropical cyclone Veronica, the planned maintenance at Pluto LNG, which lowered production volumes significantly by -12% from last year down to 39 MMboe (Million Barrels of Oil Equivalent), as well as increased production costs associated with the maintenance work. These were partially offset by a +5.6% higher realised LNG price driven by strong demand and better production output from other major LNG plants.
WPL offers a healthy 6% dividend yield, which is likely to grow over medium-term which and the recent pull back creates an attractive entry point as the negativity is largely one-off/short term in nature. Fundamentally we continue maintain our positive view, with WPL being our top energy sector pick.
We currently have a BUY rating on WPL
Australia & New Zealand Market Movers
The Australian market rallied on Friday (ASX 200 Index +0.91%) amid optimism that progress is being made between the US and China on trade. Healthcare and mining stocks were the strongest performers, with pharma giant CSL hitting a new all-time high. Fortescue Metals surged 4% after extending its $500 million share buyback program for another 12 months.
The New Zealand market was in positive territory on Friday (NZX 50 Index +0.34%) with A2 Milk leading the market higher. Sky Network Television pared back some of the previous days losses as it secured an international portion of NZ Crickets rights, with cricket rights now fragmented between Sky TV and Spark. Outside the benchmark index, Michael Hill International shares rose by 14.%, as the jeweller reported a 9.7% lift in September-quarter sales, although it said margin compression is still an issue.
3 Things Markets Will be Watching this Week
- US earnings season for the 3rd quarter kicks off this week, with the major US Banks the first to report quarterly profits.
- Minutes from the last RBA meeting are released on Tuesday
- A host of Chinese economic figures are published on Monday.
Have a Great Day,