ASX Futures are trading 1.1% lower this morning, pointing to a rocky start in trading this morning.
While Wall St was closed for a public holiday yesterday, Europe’s major benchmark indices took a massive tumble, down more than 2% as Russia massed forces to the Ukraine border, following President Vladamir Putin’s recognition of two separatist republics in the Ukraine.
Putin has signed a decree recognising the Donetsk and Luhansk People's Republics in Ukraine and told France and Germany of his intention to sign the decree late yesterday.
The decree could give Moscow the excuse it needs to invade Ukraine.
European leaders have "expressed disappointment," at the move, with NATO calling it a pretext to invasion.
“This further undermines Ukraine’s sovereignty and territorial integrity, erodes efforts towards a resolution of the conflict, and violates the Minsk Agreements, to which Russia is a party,” NATO Secretary-General Jens Stoltenberg said.
British foreign minister Liz Truss said the move violated the United Nations Charter.
“We will not allow Russia’s violation of its international commitments to go unpunished,” Truss wrote on Twitter.
The European Union has said it would place sanctions on those involved in recognising Ukraine’s breakaway regions as independent.
The US believes Russia has massed a force of 169,000-190,000 troops in the region, including pro-Russian rebels in eastern Ukraine.
US national security adviser Jake Sullivan said the administration had always been ready to talk to avert a war — but would respond to any attack.
“So, when President Macron asked President Biden yesterday if he was prepared in principle to meet with President Putin, if Russia did not invade, of course President Biden said yes,” Sullivan told NBC’s Today show on Monday. “But every indication we see on the ground right now in terms of the disposition of Russian forces is that they are, in fact, getting prepared for a major attack on Ukraine.”
Whatever happens in the coming days, it looks as if there is no coming back.
In a pre-recorded speech, Putin justified his decision to sign the decree blaming NATO for the current crisis, while calling the US-led alliance an existential threat to Russia.
In disregarding the history of Ukraine, Putin said it was a modern construct inextricably linked to Russia and claimed the nation had inherited Russia’s historic lands and was used by the West to contain Russia after the Soviet Union collapsed.
Troubling times ahead.
Here’s what we saw (source Commsec):
- The Aussie dollar broadly held between US71.85 cents and US72.20 cents and was near US71.95 cents at the North American close.
- Global oil prices were firmer on Monday in response to the ongoing stand-off between Ukraine and Russia. Reports suggest the US and Iran are close to reviving a 2015 nuclear deal that could see Iran lift oil exports.
- The Brent crude price rose by US$1.85 or 2.0% to US$95.39 a barrel.
- The US Nymex crude price rose by US$2.88 or 3.2% to US$93.95 a barrel.
- Base metal prices were mixed on Monday.
- Lead, copper and zinc fell by up to 0.8%.
- Other metals rose by up to 1.1%.
- The gold futures price rose by US$6.40 or 0.3% to US$1,906.20.
Australian markets
With all the volatility in the markets at the moment, the ASX is standing up relatively well.
In saying that, we can expect it to dip today although there are a few highlights to look out for.
Macquarie Telecom Group a standout in reporting
Macquarie Telecom Group Ltd announced its results for the half-year ended December 31, 2021, which were ahead of guidance.
Chairman Peter James said, “This result represents our fifteenth consecutive half of EBITDA growth, an outstanding achievement made possible by our committed teams, our strategy and ongoing investments across all of our business units.”
Key points:
- Fifteen consecutive halves of growth.
- Revenue of $149.3 million, an increase of 4% on 1H FY21 ($143.4 million).
- Earnings before interest, tax, depreciation, and amortisation (EBITDA) of $40.5 million, an increase of 11% on 1H FY21 ($36.4 million).
- Strong conversion of EBITDA to operating cashflows of $37.6 million in 1H FY22 vs $27.0 million in 1H FY21 (on an underlying basis).
- The company is operating effectively from remote locations during recent COVID restrictions and is well positioned to return to the office. We have continued to deliver a high level of service to our customers despite challenging circumstances.
- Net profit after tax of $3.7 million, a decrease of 48% on 1H FY21 ($7.0 million) reflecting the increase in depreciation & amortisation flowing from increased levels of capital expenditure.
- Capital expenditure for 1H FY22 was $68.9 million (1H FY21: $77.3 million) driven by growth capex of $46.2 million primarily relating to the investment in the fit out for Intellicentre 3 East. Customer related capex was $17.1 million. Maintenance capex was $5.6 million.
Chief executive David Tudehope said, “Strong demand for cyber security, private and public cloud has driven our investment in our Government and Cloud Services businesses. Continued demand from our Federal Government Agencies for cybersecurity and secure cloud, including Tier 1 Agencies such as ATO, gives high confidence for future growth in the Government Business.
“Our Intellicentre 3 East data centre fit out project for a leading corporation was delivered on time and on budget, with associated revenue commencing as planned from this quarter. We will continue to reinvest profits back into our Macquarie Park Data Centre Campus, an outstanding facility that provides world-class infrastructure to support the digital economy.”
AGL intrigue to continue
The rejected $8 billion takeover of AGL Energy (ASX:AGK) Limited by Mike Cannon-Brookes and Canada’s Brookfield is just the start of the intrigue surrounding the billionaire’s push to quicken the pace of the energy giant’s move to net-zero.
While AGL rebuffed the bid, saying its plans to split the company in two in June would hold better value for shareholders, the Cannon-Brookes led consortium will push on and meet with AGL shareholders, engage the board and potentially bring on more funding partners.
“Capital is required not just to invest in the clean, green stuff that everyone likes, but to invest in the businesses that need to transition from being heavier emissions and to get to lower emissions,” Brookfield Asia-Pacific chief executive Stewart Upson said.
“It’s designed to invest in a business like AGL, and then responsibly over a period of time – not immediately and say over 10 years – responsibly oversee the accelerated transition of the business.”
The consortium sees AGL as ripe for reinvention, something that Brookfield’s $15 billion fund knows a fair bit about.
“We have a chance to go back and engage with the company again. And look, this is just how these things go in Australia. We’ll have the opportunity to engage with the company and see if we can work our way towards something that company can be supportive of. We’ll look forward to getting into due diligence and firming things up,” Upson told The Australian.
The consortium did not intend to take coal offline immediately, however that hasn’t allayed the fears of some in government.
Federal Treasurer Josh Frydenberg said energy prices will rise if coal fired power stations close early, citing the closure of Victoria's Hazelwood plant in 2017.
The Treasurer claimed prices soared to 85% of the wholesale electricity price in response to Hazelwood's closure.
“Let me give you an indisputable fact,” Frydenberg told Today. “When Hazelwood closed in Victoria, that was about a quarter of the energy supply and what that saw was a spike of around 85% in the wholesale electricity price.
“Victoria suddenly went from being a net energy exporter to being a net energy importer particularly from NSW at times of high demand.
“Now, the people who pay the most, as a proportion of their income for higher electricity prices, are the more disadvantaged members of our community.
“We welcome more investment in renewables. We also have a responsibility to tell it as it is, that Australia needs to maintain the stability of the grid and affordability of power.”
Cannon-Brookes has said anything the consortium does with AGL will deliver cheaper prices.
Time will tell.
European markets
It was a heavily down day for European markets.
Technology shares fell the most, down by 2.6%. The pan-European STOXX 600 index fell by 1.3% to a 4-month low. The German Dax index lost 2.1% and the UK FTSE index eased by 0.4%. Russian stock markets lost double digit numbers, while the Russian ruble was also placed under pressure.
In London trade, shares in Rio Tinto rose by 0.7% while shares in BHP fell by 0.5%.
“Sentiment continues to be dominated by headlines concerning Ukraine, Russia and the West,” ThinkMarkets analyst Fawad Razaqzada said.
Good news for nickel investors though. Nickel, which is vital for stainless steel and electric car batteries, hit its highest level in more than a decade, with Russia being one of the world’s largest producers of nickel.