The ASX is set to open higher today, with ASX Futures (SPI 200) implying the benchmark ASX 200 will open 18 points to the green, up 0.26%.
Whether it follows a similar pattern to Wall Street’s opening for the week remains to be seen. We’ll see what happens by the end of the day.
Wall St stocks ended up giving back early gains, reversing session highs as investors continue their sell-off based, in part, on Fed Chair Jerome Powell’s Friday speech.
Morgan Stanley (NYSE:MS)’s chief investment officer Mike Wilson said, “Chair Powell and the Fed make it crystal clear that their job fighting inflation remains unfinished. Ironically, while bonds took the message in stride, stocks seemed to be shocked by the message.”
According to eToro US investment analyst Callie Cox markets fought the law and the law won.
“Markets were fighting the Fed and Powell just fought back,” Cox said. “Powell’s words were a reality check to this latest rally. He said himself at the beginning of his comments that the message is clear and direct: the Fed will not rest until inflation is under control.”
Cox said Powell’s tone had become aggressive again despite the signs that inflation is slowing.
“Inflation may be slowing, but it’s still much too high for the Fed’s liking and Powell is willing to risk more growth and job market health to bring it down. Powell’s language also signalled that the Fed could leave rates high for some time, a tough pill to swallow for growth-minded investors.
"Higher rates and a continuing battle over inflation could be an exceptionally tough environment for companies to weather, especially smaller or more speculative tech.
“Inflation won’t be easy to control, and we need to get used to that. Costs are still rising at a rapid pace, and the Fed feels like spending and growth hasn’t been hit hard enough to reverse the trend. We may have more of this slowing growth, high inflation pain ahead.
Cox urged investors to determine the right balance of growth and safety in their portfolios.
“It can be costly to miss the early days of a new bull market, but it can also be costly to overextend yourself to fight the Fed. While we may not test the lows of this selloff again, we also may not reach new highs any time soon.”
Here’s what we saw (source Commsec):
- The Euro rose from lows near US$0.9920 to highs near US$1.0025 and was near US$0.9995 at the US close.
- The Aussie dollar rose from lows near US68.40 cents to highs near US69.25 cents and was near US69 cents at the US close.
- The Japanese yen held between 138.30 yen per US dollar and JPY138.90 and ended US trade near JPY138.70.
- Global oil prices rose by near 4.1% on Monday. The concern is if Iran strikes a nuclear deal with the West and is permitted to export more oil, then the OPEC+ group would seek to cut production quotas. Also, there are fears that fresh unrest in Libya could disrupt the country's ability to export oil.
- “The Brent Crude Oil price rose by US$4.10 or 4.1% to US$105.09 a barrel.
- The US Nymex crude oil price rose by US$3.95 or 4.2% to US$97.01 a barrel.
- The London Metal Exchange was closed for a holiday so there were no new base metal price quotes.
- The gold futures price fell by US10 cents an ounce to US$1,749.70 an ounce.
- Spot gold was trading near US$1,737 an ounce at the US close.
- Iron ore futures fell by US26 cents or 0.2% to US$105.12 a tonne.
Woodside delivers for shareholders
Woodside Energy Group released its annual earnings this morning. The company has more than trebled its dividend payout for the June half as it benefitted from surging LNG prices and a contribution from its merger with BHP Petroleum.
Underlying profit for the six months to June 30 soared to $US1.819 billion ($2.64 billion) – up more than 400% and beating the consensus of analyst forecasts.
The dividend for shareholders for the half was US$1.09 per share, 30 cents higher than a year ago.
Chief executive Meg O’Neill put the good results down to strong operations and higher prices.
“The upheavals in global and Australian energy markets witnessed over the course of the past six months have shone a spotlight on the importance of gas in the world’s energy mix and underscores our confidence in the longer-term demand outlook for gas, which makes up 70% of Woodside’s portfolio,” O’Neill said.
It isn’t hard to see why the company has done so well.
Tony Sycamore, Market Analyst at City Index laid it out in simple terms.
Woodside Petroleum Limited (WDS) is an Australian petroleum exploration and production company. It is the largest oil and gas production operator in Australia.
In FY 2021, Woodside benefitted from rising oil and gas prices. The company reported an underlying NPAT of Us$1,620 million, up 262%. Production was 91.1 MMboe, and a final dividend of US 105 cents per share (CPS) was declared, bringing the full-year fully franked dividend to US 135 cps.
In June of this year, Woodside completed its merger with BHP’s Petroleum business transforming Woodside into a top 10 global independent energy producer by hydrocarbon production and making Woodside the largest energy company listed on the Australian Securities Exchange.
On completion, Woodside acquired the entire share capital of BHP Petroleum International Pty Ltd and issued 914,768,948 new Woodside shares to BHP. It also received net cash of approximately $1.1 billion, which included the cash remaining in BHPP bank accounts immediately prior to completion.
In a trading update released in late July, for the second quarter for the period ended June 30, Woodside reported revenues of $3,438 million, up 44% from Q1 2022. Woodside also produced 33.8 million barrels of oil equivalent (MMboe), a 60% increase from Q1 2022.
The company noted full-year 2022 production guidance of 145 – 153 million barrels of oil equivalent (MMboe) which combines
- 2022 production guidance for the pre-merger Woodside assets
- 2022 production guidance for the BHPP assets from June 1st 2022, and
- alignment of the conversion factors for the reporting of boe for all gas products
Woodside share price
Last week the share price of Woodside hit a new post-Covid high of $36.20, just a week after the price of crude oil fell to a six-month low.
Behind the push to new highs, the market is taking a bullish medium-term view of the oil price and by association Woodside along with expectations of a bumper earnings report tomorrow - including a large, fully franked dividend.
The chart below shows that the share price is testing downtrend resistance from the 2014 $43.74 high. A sustained break and close above here would allow the share price to retest the $39.38 high of October 2018 before a move towards the all-time $43.74 high.
The most significant risk to the bullish view is a re-emergence of growth/recession concerns into year-end.
