The ASX has started higher this morning, despite US stocks closing mostly lower as investors weighed the latest sanctions against Russia.
The benchmark ASX 200 climbed 1.1% to 7,123.9 at 10.41am AEDT, extending Monday's 0.7% advance.
The S&P 500 was 0.3% lower, while the Dow Jones Industrial Average lost 0.5% and the Nasdaq Composite gained 0.4%, according to preliminary FactSet data.
Oil and gas prices surged yesterday as did gold as investors look for safe havens.
Here’s what we saw (source Commsec):
- The Aussie dollar lifted from lows near US71.75 cents to highs near US72.63 cents and was near US72.60 cents in US trade.
- Global oil prices were higher as fears that blocking Russian banks from a global payments system could cause severe disruption to its oil exports. Speculation that the US could release oil from stockpiles kept a cap on prices.
- The Brent crude price rose by US$3.06 a barrel or 3.1% to US$100.99 a barrel.
- The US Nymex crude price rose by US$4.13 or 4.5% to US$95.72 a barrel.
- Base metal prices rose by as much as 1.6% with tin up the most.
- Nickel fell 0.7%; aluminium and copper were flat.
- The gold futures price rose by US$13.10 or 0.7% to US$1,900.70 an ounce.
- Spot gold was trading near US$1,909 an ounce in US trade.
- Iron ore rose by US$5.65 or 4.2% to US$139.10 a tonne.
Australian markets
RBA unlikely to raise rates … yet
We all know an interest rate rise is coming, however it’s unlikely to be when the Reserve Bank of Australia meets today.
According to Harley Dale, chief economist at CreditorWatch, the RBA won’t budge in the current environment.
"The RBA confronts some key uncertainties in the final month of the March 2022 quarter. Against this backdrop, it’s no surprise that the RBA Board determined not to raise the Official Cash Rate (OCR) in March. The dynamics have changed yet again from the start of 2022 when conjecture about interest rate rises was considerably more rampant.
"The Ukrainian crisis provides substantial geo-political uncertainty. Damaging economic and humanitarian consequences have yet to play out and discussion of petrol prices here in Australia hitting two dollars a litre won’t be lost on consumers. Consumer confidence has already been trending down for nearly 12 months and supply chain issues associated with the crisis is likely to lead to a higher demand in groceries, sparked interest rates and steeper mortgage repayments.
"Then we have a lack of certainty around how quickly the business and household sectors will bounce back now that COVID restrictions have largely been removed. There will be Small and Medium-sized Enterprises (SMEs) who have battled through the past two years yet are uncertain of their prolonged commercial viability. This situation crashes into an environment when the leniency previously provided to businesses by financial institutions and the Australian Taxation Office (ATO) is evaporating.
"We also have yet to see play out how consumers will respond to a post restriction COVID world. Many are out and about, but many also remain reticent to engage in public life in a manner consistent with the world’s ‘new normal’, whatever that may be. The situation will settle down, but in the interim, it presents a challenge for bricks and mortar SMEs.
"CreditorWatch data, led by the Business Risk Index (BRI, reveals a number of industries at significant risk of default over the next 12 months. These include Accommodation and Food Services (a major employer) and Arts and Recreation Services. One of Australia’s largest industries – Construction – tops the list of payment arrears of 60-plus days. That’s not really a list you want to top. We need to know more about how SMEs are faring in the 2022 COVID environment before a rise in official interest rates is warranted.
"Then we have the fact we have a federal election year, now almost certain to be held in May, following a regrettable period of parliamentary sitting weeks earlier in the year which adds toxicity to the campaign.
"A key economic metric working against a short-term interest rate rise is wages growth. This may have picked up in the December 2022 quarter and now displays an upward trend stretching through all of 2021, but wages growth continues to run below headline and core Consumer Price Inflation (CPI). Those metrics don’t meet the RBA test for hiking rates and so we await evidence of a further acceleration in wages growth, which isn’t forthcoming until May.
"The short of it is that the RBA is still in sit and wait mode. That won’t stop ongoing conjecture about when the RBA Board will decide the first rise in the OCR. We’ll still get that. The situation between Russia and the Ukraine likely throws some delay into interest rate expectations here, although we do have a highly anticipated Federal Reserve rate decision in the United States later this month.
"We’ve talked about how important it is to see how SMEs fare in the 2022 economic environment. This is the key domestic outcome to consider in coming months. The release next week of the CreditorWatch Business Risk Index for February will provide a crucial leading indicator insight."
US markets
While the S&P 500 banks sector lost 2.4%, defence companies were supported with Raytheon up 4.5%.
The energy sector rose 2.6% in response to higher oil prices.
Shares in First Horizon rose surged 28.8% after TD Bank Group offered to acquire the US bank in an all-cash deal valued at $13.4 billion.
However, generally there were mixed results.
“Investors are trying to digest the potential impact of the economic sanctions - that’s really more dominant in investors thoughts than the actual potential for greater military conflict,” Rick Meckler, partner at Cherry Lane Investments in New Vernon, New Jersey, told Reuters.
Chris Senyek, chief investment strategist at Wolfe Research has said the Fed needs to pull back on any policy amid the war in Ukraine.
“We believe that the risk of a Fed policy mistake is rising given that the Russia/Ukraine situation has further clouded the inflation picture and it will also intensify economic headwinds,” he said.
“Until there’s more clarity around inflation, future Fed actions and geopolitical tensions, we generally favour a combination value (particularly energy) and defence (eg, staples & health care).
As for Morgan Stanley (NYSE:MS), it says “The current investment environment is faced with more uncertainties than usual, which explains the higher volatility and rising risk premiums—ie, falling valuations. During such periods, it’s what we don’t know that can hurt us the most, which means it’s not a time to be overconfident about the future.
“In our view, earnings growth assumptions are starting to look too high as the ratio of negative-to-positive guidance has recently spiked due to a shortfall in expected demand (payback) and/or profitability.”
European markets
Markets eased yesterday as Russia and Ukraine held ceasefire talks with no signs of progress.
Banks slumped 5.7% after big Russian banks were blocked from the SWIFT global payments system.
Defence companies rose with German company Rheinmetall up 24.8% after German Chancellor Olaf Scholz said the country would sharply increase its spending on defence to more than 2% of its economic output.
The pan-European STOXX 600 index lost 0.1% to end the month lower by 3.4%.
The German Dax index fell 0.7% and the UK FTSE index dropped 0.4%.
In London trade, shares in Rio Tinto rose by 2.2% and BHP lifted by 1.9%.