While energy stocks helped drive the share market higher on Monday, the ASX is expected to slip in morning trading after mixed results on Wall St.
Investors will be keeping a close eye on oil prices, which hit a three-year high as the sector benefits from critical European shortages.
More on that shortly, here’s what we know:
- Global oil prices rose by near 2% on Monday.
- The Brent crude price rose by US$1.44 or 1.8% to a 3-year high of US$79.53 a barrel.
- Base metal prices were mostly weaker on Monday.
- Tin fell 4.4%.
- Nickel fell 2.3%.
- Lead rose by 0.6%.
- Copper rose by 0.3%.
- The gold futures price rose by US30 cents an ounce or less than 0.1% to U$1,752 an ounce. Spot gold was trading near US$1,750 an ounce at the US close.
- Iron ore lifted by US$8.50 a tonne or 7.7% to US$118.65 a tonne.
- The Aussie Dollar has perked up a little, trading at US$0.7288.
Australian markets
The S&P/ASX200 index rose 0.57% to 7,384.2 points on Monday, led by gains in energy, materials, financials and consumer discretionary stocks.
Investors may also have been sparked by a more detailed plan to re-open NSW – the country’s largest state economy.
That news helped lift the share prices of major banks, with the Commonwealth Bank gaining 2.9%.
Meanwhile, oil and gas producers stood out, with Woodside gaining 3.2% to $22.88 and Oil Search rising 1.99% to $4.11 as investors look for winners from fuel shortages that are hitting Europe as the continent heads into winter.
The ASX is expected to dip in trading this morning, but analysts expect a recovery to come quickly, leading to a higher close.
We’re going to keep the Aussie wrap short and flip things around a bit as what is happening in Europe could have wider ramifications.
Australian indices
- ASX 200 rose 0.57% to 7,384.20.
- ASX24 futures fell 0.6% to 7,310.
- S&P/ASX Small Ordinaries rose 0.64% to 3,515.70.
- All Ordinaries rose 0.54% to 7,690.70.
European markets
The natural gas price made big moves overnight up by 13.4% to US$5.83. The rising prices are in part due to severe shortages being experienced across Europe because of disruptions to supplies from Norway and Russia.
According to Alex Moffatt, director Joseph Palmer & Sons, “The situation is worsening and with the colder weather starting many people are going to struggle to heat their homes. One uncharitable observer has even pointed a finger at Russia saying they are withholding supplies on purpose.
“Some of the problem also lies with the history of resellers offering fixed-price gas to consumers and then they punt the future price taking the, hopefully, positive difference for themselves.
"With the shortages from the major suppliers pushing up wholesale gas prices a contango has occurred where the futures price is higher than the spot price. Many of these energy resellers in the UK and Europe are going belly up and so households suffer.”
Ipek Ozkardeskaya, senior analyst at Swissquote, believes that the natural gas futures rebound should continue rising as the winter approaches.
“The rally is gaining momentum and we may well see the bulls try an attempt on the $80 per barrel in the coming weeks, but fast-rising oil prices also mean a further pressure on inflation, and a further pressure on inflation means tighter central bank policies and less support to the economic activity, which, in return, would mean a slower demand,” Ozkardeskaya said.
“Therefore, the rally should see a limited upside.”
The other major event in Europe is the German election, where it looks as though Germany’s SPD party is ahead of outgoing Angela Merkel’s Christian Democrats. The Greens came third.
“Now an SPD-led coalition in Germany is quite bearish for the DAX as the centre-left party is in favour of increasing minimum wages, raising taxes and supporting ‘labour’ at the expense of ‘capital’, the kind of changes that would weigh on company earnings, and their share prices,” Ozkardeskaya said.
“But obviously, what could be done will also depend on coalition partners and changes won’t happen overnight. There is no particular stress on DAX futures this morning, which will likely continue recovering last week’s losses. But it’s good to keep in mind that the hawkish shift in the ECB’s policy due to higher inflation and the new German government could slow down the DAX rally compared to what it would have been otherwise.
“We still have a couple of weeks and months of uncertainty that could dent appetite in German stocks, but the DAX will probably not dive alone, the overall trend will depend on the overall market sentiment.”
European indices
- STOXX 600 fell 0.19% to 462.42.
- German Dax rose 0.3% to 15,573.88.
- UK FTSE rose 0.2% to 7,063.40.
US markets
Treasury bond yields are higher. The US 10-year note is at 1.49% and the move did not go unnoticed by traders in technology stocks who pushed prices lower.
Despite discouraging news on the wire, US and European futures traded mostly in the positive, hinting at further consolidation in US equities at the start of the week, especially with energy stocks.
Evergrande continues to loom large and ties China to the US in ways the US would rather it didn’t.
“The Evergrande debt crisis, the Chinese energy crackdown on missed targets and the ban on cryptocurrencies have been shaking the markets, along with Federal Reserve’s (Fed) more hawkish policy stance last week, and not only on its QE taper front but also regarding interest rates,” Ozkardeskaya said.
US indices
- Dow Jones rose 0.2% to 34,869.37.
- S&P 500 dropped 0.3% to 4,443.11.
- Nasdaq fell 0.5% to 14,969.97.
What’s happening in Asia
Ozkardeskaya believes the one place to avoid again this week, is Chinese equities.
“First, even an eventual Evergrande bankruptcy wouldn’t trigger a systemic crisis, it will mean that Chinese companies will have a harder time getting fresh credit. And because the credit growth has been one of the major pillars of the Chinese growth over the past decade, and because the Chinese growth fuels the global growth, it’s a major worry for the global growth as well,” he said.
“Then, another major pillar of the Chinese growth, energy, is also in crisis with headlines pointing that half of China’s regions missed their energy consumption targets, which now results in factories being ordered to curb production or even shut down to meet Beijing’s green goals. That’s good news for the planet, but bad news for the Chinese economic activity, obviously.”
Crypto is also in the gun in China.
Cryptocurrencies were hit by the Chinese crackdown rules, with all crypto transactions and mining activities now forbidden in China.
“All crypto-related activities were already forbidden in China, but they were still happening because Chinese mainlanders always found ways to go around the regulations,” Ozkardeskaya said.
“But this time, it looks like a loophole which allowed citizens to trade cryptocurrencies was closed and the impact is real; crypto exchanges like Binance are no longer accepting new accounts from mainland China and will be gradually closing the Chinese accounts, as no one wants to take the risk of having Beijing on its shoulders.
“The impact of the latest Chinese news on Bitcoin’s price was significant but not dramatic as the $40K support held well during the kneejerk drop and during the weekend. But Bitcoin is still in the bearish consolidation zone and should make a move above the $44/45K mark to step back to the positive trend, otherwise we may see the price of a coin fluctuating between 40 and 45K range without too much excitement for traders.”