US Federal Reserve Chair Jerome Powell put a rocket up US markets yesterday, which has had a positive impact on the ASX this morning.
ASX SPI 200 futures are up 0.6% higher to 7,134.
US stocks posted sharp gains after Powell provided the clearest signals to date on the central bank’s plan to lift interest rates in its combat against inflation.
Powell flagged a 25 basis points increase at the central bank’s meeting in two weeks, which eased concern for a more aggressive rate hike schedule to tame inflation.
“I do think it will be appropriate to raise our target range for the federal funds rate at the March meeting in a couple of weeks. And I’m inclined to propose [the committee] support a 25 basis point rate hike,” he said.
In response, the Dow Jones Industrial Average rose almost 600 points, or 1.8%, at around 33,889, and briefly recaptured a perch at 34,000 before pulling back.
The S&P 500 index gained 1.9% to 4,387, with all 11 sectors of the broad-market benchmark ending higher led by financials up 2.6%, and energy and materials up 2.2%. The Nasdaq Composite Index advanced 1.6% to 13,752.
Here’s what we saw (source Commsec):
- The Aussie dollar rose from lows near US72.45 cents to US73.05 cents and was near highs in afternoon US trade.
- Global oil prices were higher with OPEC+ oil producers sticking to the long-term plan of lifting output in April by 400,000 barrels per day. Key US oil inventories at the Cushing, Oklahoma storage facility fell to 4-year lows last week.
- The Brent crude price rose by US$7.96 a barrel or 7.6% to US$112.93 a barrel.
- The US Nymex crude price rose by US$7.19 or 7.0% to US$110.60 a barrel.
- Base metal prices rose by as much as 3.6% with nickel up the most.
- Lead fell 0.5% and tin fell 0.3%.
- The gold futures price fell by US$31.50 or 1.6% to US$1,922.30 an ounce.
- Spot gold was trading near US$1,925 an ounce in US trade.
- Iron ore rose by US55 cents or 0.4% to US$145.00 a tonne.
Australian market
The ASX has had a solid start to trading this morning with the Materials and Energy sectors reacting positively to big gains in commodities. Wall Street’s bounce has also had an impact.
Energy is up 3.1% and Materials up 2.3% to start the day.
On the stock front, Whitehaven Coal Ltd is leading the way so far with a 9% rise on the back of surging coal prices.
Lithium miners are also doing well with Mineral Resources Limited and Liontown Resources (ASX:LTR) Ltd gaining 5%.
With US Futures down 0.2-0.3%, we’ll have to see how long the gains last.
As for coal
The price of thermal coal on the spot market reached an all-time record overnight.
Newcastle thermal coal is up 42% to $US435 a tonne and has tripled its value in the last two months alone. This is the benchmark for seaborne supplies in the Asia Pacific region.
The world is now scrambling to find alternatives to Russian coal: Russia is the world's third-largest exporter of coal and sanctions against it are expected to crimp supplies to major buyers in Asia including China.
Indonesian intervention, catastrophic weather patterns, infrastructure bottlenecks, labour shortages and war are all playing their part in the supply squeeze.
"The above events combined to push thermal coal prices to what were then record highs in September and October 2021. The recent moves are most certainly of a geopolitical nature," Shaw and Partners analyst Peter O'Connor says.
The Australian has reported, “the Federal Government has instructed its trade officials to open talks with major Australian coal producers to find spare coal cargoes for Poland and big trading partners in Asia amid a global scramble to find alternatives to Russian coal”.
US market
- As carmakers move into the electric vehicle space, Ford will boost spending on its EVs by up to $US50 billion, up from the previous $US30 billion, through 2026. The EV unit will now run separately from its legacy combustion engine business, as it looks to give Tesla a ruin for its money.
- Citigroup’s new targets as part of its three-to-five-year strategy have failed to move analysts, who are sceptical the company can execute its plan. Citi is aiming for a return on tangible common equity (RoTCE) of 11% to 12% in the next three to five years. Citigroup said its expense efficiency ratio will improve to 60% to 63% in the near term, compared with 65% last year.
- Exxon Mobil will slash expenses, along with its oil and gas production portfolio to boost returns. It expects to cut annual costs by $US9 billion by 2023, $US3 billion more than a previous target, as it looks to drive down debt and double earnings by 2027, over 2019 levels.
European markets
Also rebounded.
The oil and gas index rose by 4.1% with miners up 2.3%. Banks added 1.4% based on Powell’s announcement. Carmakers lost 1.6%. Utilities fell by 1.7%. Eurozone inflation hit record highs of 5.8%. The pan-European STOXX 600 index rose by 0.9%. The German Dax index rose by 0.7% with the UK FTSE index up by 1.4%.
In London trade, shares in Rio Tinto rose by 3.5% and BHP lifted by 4.4%.