With Wall Street and European markets ending last week lower, it is likely the ASX will continue the trend to kick off Monday’s session.
ASX SPI 200 futures are down 0.7% to 7,094, as we enter another week highlighted by earning results.
Lendlease and BlueScope will report today.
The Dow Jones Industrial Average closed 0.7% lower on Friday ahead of the President’s Day long weekend. The S&P 500 also slid 0.7% and the Nasdaq dropped 1.2%.
Much of what will happen this week could be determined by what happens between Russia and the Ukraine, with tensions escalating to shelling over the weekend.
Both nations have called for intensified diplomatic efforts to avert an all-out war, yet each is blaming the other for shelling on the frontline separating Kyiv’s forces from Moscow-backed separatists.
Russian President Vladimir Putin has spoken with France’s President Emmanuel Macron, with Macron’s office dubbing the calls “the last possible and necessary efforts to avoid a major conflict in Ukraine”.
Ukrainian President Volodymyr Zelensky is desperate for talks amid confusion as to what Putin actually wants, although Putin said “the cause of the escalation is provocations carried out by the Ukrainian security forces”, according to a Kremlin statement.
Meanwhile, the US has upped the ante on the tough talk, although it is still pushing for a diplomatic solution until Russian “tanks are actually rolling”.
During his 105-minute discussion with Macron, Putin repeated a call for “the United States and NATO to take Russian demands for security guarantees seriously”.
US President Joe Biden is convinced Russia will invade.
For the stock market, this means we could see a rotation into safe-haven assets such as cash, bonds and gold.
“I think a war will mean wobbly equity markets, but I think the impact on bond yields is contestable because a war would exacerbate current supply chain bottlenecks, it would probably mean a rapid increase in energy prices, and it might escalate inflation concerns,” said Stephen Miller, an economist and adviser at GFSM Funds Management.
“So, I don’t know how that plays out on bond yields, bonds are a safe haven, but I find it difficult to own a US 10-year at 2% when headline inflation is 7% and not showing much sign of slowing down.”
Here’s what we saw (source Commsec):
- The Aussie dollar fell from highs near US72.25 cents to lows near US71.65 cents and was near US71.75 cents at the US close.
- Global oil prices were mixed on Friday. Fears of a supply disruption from a Russia-Ukraine conflict were balanced against the prospect of higher Iranian oil exports.
- Crude prices rose slightly in after-hours trading after US President Joe Biden said that he was convinced Russian President Vladimir Putin had made a decision to invade Ukraine in the coming days.
- The Brent crude price rose by US57 cents or 0.6% to US$93.54 a barrel.
- The US Nymex crude price lost US69 cents or 0.8% to US$91.07 a barrel. Over the week Brent fell US90 cents or 1.0% while Nymex fell by US$2.03 or 2.2%.
- Base metal prices were mostly higher on Friday with nickel up 1.5%. Zinc fell 0.8% and aluminium fell 0.5%. Over the week metals rose 1.2-5.3% but zinc lost 0.6%.
- The gold futures price fell by US$2.20 or 0.1% to US$1,899.80 an ounce.
- Spot gold was trading near US$1,898 an ounce at the US close. Over the week gold rose by US$57.70 or 3.1%.
- Iron ore rose by US$2.85 or 2.2% to US$133.50 a tonne. Over the week iron ore fell by US$16.65 or 11.1%.
Australian market
The best performing sectors last week were Healthcare up over 7%, followed by Consumer Staples over 3% higher and Utilities up over 1%.
The worst performing sectors were Communication Services and Materials, down over 1% and Information Technology, which also took a 1+% tumble.
The best performers in the S&P/ASX top 100 stocks include Vicinity Centres up over 12% followed by Treasury Wine Estates Ltd, CSL Limited (ASX:CSL) and Evolution Mining Ltd (ASX:EVN), all up over 11%.
The worst-performing stocks included Fortescue Metals Group (ASX:FMG) Limited down over 10%, Mineral Resources Limited down over 9% and Santos Ltd (ASX:STO) down over 4%.
What's next for the Australian share market?
As we do each week, we asked Wealth Within founder and chief analyst Dale Gillham, his thoughts on the market.
“In my last report, I indicated that investors should exercise caution and a little patience before jumping into the market, as it was unconfirmed whether it had finished falling. So far this has paid off as the market has shown weakness since it traded up to a high of 7,646 points last Thursday 10 February.
“Over the past six trading days, the All-Ordinaries Index has failed to trade above that high and is currently showing indecision. Once again, I recommend that investors exercise caution, as it is still possible that the All Ordinaries Index could fall below 7,000 points over the next few weeks.
“Investors who jump in early hoping to grab a bargain may get the opposite because even Telstra, which is normally a predictable stock, fell 4% on Thursday. The good news is that once the current volatility is over, I believe the Australian market will do well in 2022.”
AGL rejects Cannon-Brookes
One of the more interesting developments on the market recently has been the acquisition bid by Brookfield and Atlassian (NASDAQ:TEAM)’s Mike Cannon-Brookes for energy giant AGL Energy (ASX:AGK) Limited.
AGL has rejected a $7.50 per share offer, a 4.7% premium to AGL’s closing price of $7.16 a share on Friday.
AGL has stated the offer materially undervalues the company and is not in the interest of shareholders.
“The proposal does not offer an adequate premium for a change of control and is not in the best interests of AGL Energy (ASX:AGK) shareholders,” said AGL Energy chairman Peter Botten.
“Under the unsolicited proposal, the board believes AGL Energy shareholders would be forgoing the opportunity to realise potential future value via AGL Energy’s proposed demerger as both proposed organisations pursue decisive action on decarbonisation.”
Borders reopen
Australia’s international borders reopen today with flights already landing, however, a full recovery for the sector will take time, with Sydney Airport chief executive officer, Geoff Culbert, telling Sky News that international arrivals in Australia will not recover to pre-pandemic levels until 2024.
"International (arrivals) is still only at 15% of pre-COVID levels, but we'll have 5,000 passengers come through today."
At its lowest level, international arrivals were just 1% of pre-COVID levels.
"That's less than 100 passengers a day – so we're having a good day today," Culbert said.
Qantas chief executive officer, Alan Joyce, told Sunrise that since international borders reopened Australia has seen a "doubling of international intakes".
The airline’s bookings are strong, with more than 14,000 passengers set to fly into Australia this week.
"We can clearly see from the Australian Government’s announcement that people are very keen to come back to Australia, and we continue to see strong bookings out of the US and UK, as well as South Africa and Canada," Joyce said.
US markets
Wall St was down on Friday ahead of a long weekend.
Fears of a Russian invasion of Ukraine dominated trade as well as monthly option expiry.
Shares in chipmaker Intel fell 5.3% after it said it sees no major improvements in profit margins before 2025.
The Dow Jones index closed down by 233 points or 0.7%. The S&P 500 index lost 0.7% with the Nasdaq index dropping 169 points or 1.2%. Over the week, the Dow fell by 1.9%; S&P 500 fell 1.6%, and the Nasdaq fell by 1.8%.
European markets
Also closed lower last week.
Travel & Leisure fell by 3.1%.
The pan-European STOXX 600 index fell by 0.8% to be down 1.9% on the week.
The German Dax index lost 1.5% and the UK FTSE index eased by 0.3%.