The ASX should open higher this morning.
ASX SPI 200 futures closed 0.4% higher at 7,314 as of 8.30am AEDT.
Wall St was also higher, with investors factoring in the milder nature of the Omicron variant.
Commsec reported that shares linked to an economic reopening were well performed: Boeing was up 3.7%, Chevron was 1.6% and United Airlines gained 8.3%.
One of the losers was Tesla, undone by a US government regulatory probe. More on that shortly.
Here’s what we saw:
- The Aussie dollar rose from lows near US70.09 cents to highs near US70.52 cents and was near US70.45 cents at the US close.
- Global oil prices jumped almost 5%. Commsec reports that “Saudi Arabia boosted the price of its crude and the prospect of an imminent rise in Iranian oil exports receded as talks with the US stalled”.
- The Brent crude price rose by US$3.20 or 4.6% to US$73.08 a barrel.
- The US Nymex crude price added US$3.23 or 4.9% to US$69.49 a barrel.
- Base metal prices came under renewed pressure as concerns over the Omicron virus variant outweighed efforts by China's central bank to provide liquidity to the economy.
- Tin fell by 1.7%.
- Aluminium was down 1.4%.
- Copper rose 0.8%.
- The gold futures price eased by US$4.40 or 0.2% to US$1,779.50 an ounce.
- Spot gold was trading near US$1,778 an ounce at the US close.
- Iron ore lifted US$1.90 or 1.9% to US$100.40 a tonne on improving margins at Chinese steel mills.
Note, the buoyancy in the market overnight could be short-lived with Evergrande’s debt woes coming into focus once again after a formal announcement of a potential default.
"We still expect systemic risk to be contained," UBS analysts told investors.
"Evergrande’s debt problem has aggravated challenges in the property sector already weighed down by weakening fundamentals and policy tightening.
"Developers' offshore financing channels have been effectively closed and cash flows drained by falling sales and freezing pre-sales proceeds, although regulators have told banks to ease mortgage lending and developer loans somewhat recently.
"The property sector matters enormously for China's macroeconomy and financial stability and … without policy easing, property sales and starts could fall 20% in 2022, which would likely cause a hard landing.
"However, we believe the government will remain pragmatic and will ease property policies over the coming months."
Evergrande is China's largest property developer. On December 3, it received a notice to honour an offshore guarantee obligation of $US260 million.
However, it has stated that it is unsure if it can meet its obligations.
"It may take quite some time before we know how Evergrande will be restructured, but it seems the process has finally begun,” the UBS note said.
"As we had expected before, the government’s priority seems to be ensuring property project delivery and protecting home buyers, as evidenced by the Guangdong (where Evergrande is based) government's action to try to coordinate a debt restructuring effort to ‘protect interests of all parties’, which include suppliers, construction companies, creditors and home buyers, and ensure ‘social stability’.”
Australian market
The S&P/ASX200 closed up 3.9 points to 7,245.1. It was held back by the tech sector which lost 2.2%, however, consumer staples and utilities were up strongly.
Today is all about the Reserve Bank of Australia (RBA) meeting at 2.30 AEST. The RBA will discuss interest rates, which are likely to stay put for a little while longer.
RBA to hold
According to CreditorWatch chief economist Harley Dale, “This is the last interest rate decision from the Board of the Reserve Bank of Australia until Tuesday the first of February 2022. Maybe they have a Christmas tree in the corner of the room because the RBA hasn’t shaken many trees in its final 2021 stanza.
“In a predictable fashion, the RBA Board came to the decision to keep the Official Cash Rate (OCR) at the record low of 0.1% at the end of 2021. The OCR has stood there since November 2020 when the bank cut the rate by 15 basis points.”
Dale said the RBA was happy to play Santa for now due to the uncertainty surrounding households and businesses.
“The Australian economy is emerging from an extensive lockdown period, although restrictions continue to vary and move around. There is still uncertainty out there for households and businesses.
“November may represent the first month when Australia was over substantial lockdowns, but yet there is little data on that. The CreditorWatch Business Risk Index for November 2021 conveyed the vast divergences in business conditions across industries and regions. In other words, the economic recovery won’t happen anywhere near close to a straight line. A recovery never does, but now more so than ever.
“The RBA may well be contemplating the prospect of interest rates rising sooner than officially conveyed for such a long time now, but they seem happy to play Santa for now.
“Conjecture regarding when the RBA will move is only going to escalate in 2022. That in and of itself is not helpful for household and, especially business confidence. Yet in such a dynamic economic environment, early February 2022 is a long way off.
"The first meeting of the RBA Board next year will convene with considerably more information regarding the economic environment post-June - October of this year. That statement at the very beginning of February may set tongues wagging.”
TPG’s bold move
TPG Telecom Ltd (ASX:TPM) has landed Qantas as a key client in a multi-million-dollar contract as it eyes $1 biillion a year in revenue by 2025.
TPG has poached Qantas from Telstra Corporation Ltd (ASX:TLS) in what will be a five-year deal to provide Qantas with a new fibre network including voice and data carriage services across its head offices and airport terminals in Canberra, Melbourne, Sydney, Perth, Adelaide and Darwin.
“We are building Australia’s newest and smartest 5G network, which, alongside our extensive fibre network and access to the NBN, will put us on a path to disrupt the market and be the number one communications provider for business innovation, choice and value,” TPG's group executive for enterprise and government Jonathan Rutherford said.
“As we accelerate the benefits from the merger of TPG Telecom and Vodafone, now is the time to put a strategic stake in the ground to show all Australian businesses that TPG Telecom has the infrastructure, reach, innovation and connectivity solutions to help them grow and compete across Australia and the world.
"Given the size of the business market and our strong network assets and products, TPG Telecom should be able to reach $1 billion-a-year business revenue and we think that’s achievable by 2025.”
Australian indices (at time of writing)
- ASX 200 rose 0.50% to 7,281.10.
- ASX24 futures rose 0.4% to 7,314.
- S&P/ASX Small Ordinaries rose 0.80% to 3,355.70.
- All Ordinaries rose 0.50% to 7,566.80.
US markets
The US indices were all higher yesterday, with the DOW scoring its biggest point gain in over a year.
Investors shrugged off concerns about Omicron and Federal Reserve policy moves.
“Reports of the omicron symptoms being less severe are boosting risk appetite, but it’s too soon to get carried away,” wrote London-based senior market analyst for OANDA Corp, Craig Erlam.
“I expect extreme caution to remain until the data gives us cause for more optimism.”
In New York, Mayor Bill de Blasio has announced vaccine mandates for all private-sector employees starting this month, meanwhile, traders are bracing for the release of consumer price data to be released on Friday.
“Against this backdrop of uncertainty and angst, portfolio diversification, particularly considering exposure to both high yield and quality assets, remains the primary tool for investors,” wrote chief strategist at Principal Global Investors Seema Shah.
Over at Tesla
Tesla Inc (NASDAQ:TSLA). stock fell 6.4% after regulators opened an investigation into the EV giant.
The company has now endured its biggest four-day decline since March. Its market value also dipped below $1 trillion.
The US Securities and Exchange Commission (SEC) is investigating Tesla over whistle-blower claims on solar panel defects.
Its autopilot system is also under investigation by the National Highway Traffic Safety Administration, with The New York Times reporting that Tesla engineers have questioned the safety of the company’s Autopilot system.
It is likely Tesla shares will continue to fall based on these investigations as well as founder Elon Musk’s sell-down: he still has some way to go to sell off 10% of his shares.
US indices
- Dow Jones was gained 1.9% to 35,227.03.
- S&P 500 rose 1.2% to 4,591.67.
- Nasdaq rose 0.9% to 15,225.15.
European market
European share markets were also higher yesterday.
The pan-European STOXX 600 index was led by travel and leisure stocks up 3.9% on hopes that Omicron virus variant symptoms may be mild.
The German Dax index gained despite a hefty 6.9% collapse in German factory orders in October and the UK FTSE was higher with London-listed shares in Rio Tinto up 0.3% and BHP 0.8% higher.
European indices
- STOXX 600 rose 1.28% to 468.71.
- German Dax rose 1.4% to 15,380.79.
- UK FTSE rose 1.5% to 7,232.28.