The Australian share market was higher on Friday (ASX 200 index +0.72%) which saw the market index gain +1.5% in a shortened trading week. The banks were able to rally on Friday, with all but Commonwealth recording minor gains in the final session. The Banks have been under pressure in the wake of the royal commission into practices across the sector, and short interest (betting the stock price will fall) in the banks has risen to 1.4% or $6 billion, according to a Maquarie Wealth Management report dated April 24, which said Westpac was now the most shorted major bank.
The New Zealand market rallied on Friday (NZX 50 index +1.07%) led by Fisher & Paykel Healthcare Corp and Kathmandu in broad-based buying. Fisher & Paykel Healthcare experienced the second day of gains. The strength in the US dollar will likely be helping investor sentiment, while there was also publication of research in the International Journal of COPD (chronic obstructive pulmonary disease, which includes emphysema, chronic bronchitis and chronic asthma), showing significant benefits for patients using its humidifier.
The Reserve Bank of Australia makes an interest rate decision Tuesday and is expected to keep the cash rate on hold. Importantly, the US Federal Reserve (Fed) meets mid-week and is due to release its latest monetary policy announcement Thursday morning (Australian/NZ time). As we have discussed previously, comments by the Fed will be analysed closely as the pace of rate hikes in the US are a key factor that will drive markets this year.
Stock in Focus: NZ Refining (NZR:NZ)
The US dollar has been showing strength in recent weeks and our medium-term view remains for strength in the USD versus the AUD & NZD. One stock which is sensitive to moves in the USD (NZD/USD exchange rate) is NZ Refining (NZR).
At its recent Annual General Meeting, NZR CEO Sjoerd Post said the failure of the pipeline between the plant at Marsden Point and Auckland in September 2017 had a net impact on profit of $8.2m. At the end of February, the company declared a 66% increase in net profit for the year to Dec. 31 to $78.5m, driven by historically high average refining margins of US$8.02 per barrel of oil processed.
The sound 2017 full year result was driven by an improvement in Gross Refinery Margins (GRM). While it was a pleasing to see that refining margins remain well above historical averages, we believe the next leg higher in terms of NZR’s profitability will have to come from currency gains.
Global Market Digest:
Global markets ended a choppy session more or less flat on Friday, with Amazon leading gains as the online retailer released a blockbuster earnings report.
In terms of what to watch this week, corporate earnings in the US will continue to be closely watched by investors. More than half of the S&P 500 (the major US market index) companies have reported first-quarter earnings already, with 79% beating consensus estimates. Analysts now expect first-quarter earnings growth of 24.6%, more than double expectations at the beginning of the year, according to Thomson Reuters data. Another 125 S&P 500 companies are poised to release results this week including Apple, McDonald’s and Ford.
3 Things Markets Will be Watching this Week
1. Corporate earnings season continues in the US this week.
2. The Reserve Bank of Australia makes an interest rate decision Tuesday.
3. The US Federal Reserve holds its latest monetary policy meeting mid-week.
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