Australian markets rally: energy stocks climb, banks lag

ASX 200 key takeaways:

• Materials and Energy indexes rise strongly, Financials fall
• Macquarie downgrades Woodside Petroleum (WPL) to Neutral
• WTI last traded at US$30.99 a barrel; Brent Crude at US$33.85 a barrel

The ASX 200 has started the week off positively – adding to the gains it notched up last Friday – finishing off Monday’s session at 5,460 points.

Overall, Australia’s Materials and Energy sectors were some of the best performing on Monday, presumably buoyed by elevated iron ore prices and oil’s recent bullish recovery; while the Financials and Utilities indexes were some of the worst performing.

BHP, FMG and Rio Tinto share prices trend higher, iron ore futures remain elevated

Indeed, all of Australia's big three miners notched up strong gains during the session: BHP Billiton (BHP) rose 4.52% to $33.10 per share; while Rio Tinto (RIO) climbed nearly 6% to finish out the session at $90.30 per share.

Fortescue Metals Group (FMG) finished slightly ahead of RIO, closing out Monday up 5.82% to $13.28 per share. FMG hit an all-time high of $13.53 during the session – implying an impressive one year return of 48.04%.

Overall, this bullish activity from Australia’s materials sector comes as Chinese demand for iron ore remains robust and prices elevated well across the futures curve.

For reference, CME’s front-month iron ore futures contract last traded at US$89.50 per tonne. Maybe most interestingly however, iron ore futures don’t dip below US$70 per tonne until July 2022.

Santos, Woodside and Oil Search share prices trend higher

Elsewhere, ASX-listed energy stocks also traded positively today – as both Brent and WTI Crude futures prices continued to trend up. Santos (STO) closed out Monday up 5.87%, Oil Search (OSH) up 5.63%, while Woodside Petroleum (WPL) added a more modest 2.02%.

Looking forward, as Macquarie Wealth Management analysts today postulated:

‘Macro datapoints will remain catalysts for the sector, in our view, given the unprecedented decline in oil demand due to COVID-19.’

Moreover, while Macquarie retained its Outperform ratings on both Santos and Oil Search – as well as a generally positive view on the sector – the investment bank shifted its rating on Woodside from Outperform to Neutral, saying:

‘Despite excellent technical & commercial progress so far on Scarborough we expect the project to face delays given the oversupplied global gas/LNG market.’

Lack of clarity around WPL’s FY20 dividend prospects – which according to the investment bank will hinge on oil’s H2 ‘price path’ – was also flagged as an issue. Macquarie has a $23.50 price target on Woodside.

At the time of writing, WTI Crude's June contract was up $1.56 or 5.30%, to US$30.99 a barrel; while Brent Crude's ICE July contract was up 4.15%, to US$33.85 a barrel.

Other bits and pieces

Though stocks leveraged against some of the world’s most important commodities performed well on Monday, Australia’s big four banks witnessed moderate selling pressure, with the ASX 200 Financials Index (XFJ) falling 57 points or 1.26%.

The National Australia Bank (NAB) was the worst performing of the big four, seeing its share price fall close to 1.88%. Commonwealth Bank of Australia performed somewhat better, down just 1.17%.

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