Despite the losses on Wall St on Friday, the ASX has opened higher as we start a new week of trading.
The S&P/ASX 200 index was up by 0.3% to 7,132.0 at 10.10am AEDT.
Both European and US markets were hit by Russia’s offensive against the Ukraine.
While February jobs data in the US beat forecasts, investors were more focused on the worsening conflict that resulted in a fire at a nuclear power plant.
The Dow Jones Industrial Average slid 353 points, or 1%, to about 33,442. The S&P 500 index fell about 53 points, or 1.2%, to about 4,311. The Nasdaq Composite Index dropped about 263 points, or 1.9%, to 13,275.
February non-farm payrolls rose by 678,000, higher than the forecast 440,000.
US average hourly earnings rose 1 cent to $31.58 and hours worked rose 0.1 hours.
“You couldn’t have asked for a better jobs report and yet the market is really taking it on the chin today,” chief market strategist at FL Putnam, Ellen Hazen told MarketWatch on Friday.
“The deteriorating situation in Ukraine is driving the markets.”
The attack on the power plant in the Ukrainian city of Enerhodar had an enormous effect on sentiment. Fortunately, three of the six reactors were offline at the time of the attack, however, Russian military took control of the plant as fears grow that it will seize all Ukrainian infrastructure.
Russia gaining control of the nuclear plant heightened concern that its military would continue to take over other Ukrainian infrastructure such as energy, water and telecommunications, Hazen told MarketWatch.
Note there was no unchanged radiation or any danger to citizens after the nuclear power plant attack.
“Traders may be unwilling to hold risk over the weekend, given the reality of a hot war in Ukraine and that the situation can move in any direction,” said a Saxo Bank strategy team, in a note to clients.
Investors are still flocking to safe havens including gold, while crude oil remains elevated.
“Russia is still exporting energy, but an estimated 70% of Russia’s oil exports may be on hold because of uncertainty among traders and shippers of Russian oil over how the various sanctions apply to their operations,” the global investment strategy team at Wells Fargo Investment Institute, said in a note Friday.
Here’s what we saw: (Source Commsec)
- The Euro fell from highs near US$1.1040 to lows near US$1.0900 and was at US$1.0926 at the US close.
- The Aussie dollar rose from lows near US73.15 cents to highs near US73.80 cents and was at US73.70 cents at the US close.
- Global oil prices rose sharply on fears of direct sanctions on the Russian oil sector. Russia is the world's second-largest oil exporter, exporting 4 million to 5 million barrels of oil daily. According to Commsec, “Investors are hopeful for a nuclear agreement between the US and Iran that could see the latter adding 1 million barrels per day of oil to global supply.”
- The Brent crude price rose by US$7.65 a barrel or 6.9% to a 9-year high of US$118.11 a barrel.
- The US Nymex crude price rose by US$8.01 or 7.4% to US$115.68 a barrel - the highest level since September 2008. Over the week, Brent rose by US$20.18 or 20.6%. Nymex crude rose by US$24.09 or 26.3%.
- Base metal prices rose by 2.1-7.3% on Friday with lead up the least and nickel the most. Over the week metals rose 3.6-19.2% with lead up the least and nickel up the most.
- The gold futures price rose by US$30.70 or 1.6% to US$1,966.60 an ounce. Spot gold was trading near US$1,968 an ounce in US trade. Over the week gold rose by US$79 an ounce or 4.2%.
- Iron ore rose fell by US60 cents or 0.4% to US$152.40 a tonne. Over the week, iron ore rose by US$18.95 or 14.2%.
Australian market
It is likely to be another volatile week on the ASX as the global economy is threatened by the Russia Ukraine war.
Prices continue to rise, with petrol prices remaining around the $1.90 to $2 mark around Australia.
“Although many commodity prices are already back to levels last seen in 2008, there is still scope for prices to rise further if Western sanctions are extended to cover energy commodities,” Capital Economics said.
AGL rejects second offer
AGL Energy (ASX:AGK) Limited has once again rejected an offer from the Cannon-Brookes/Brookfield consortium.
The consortium put in a revised offer to acquire AGL for $8.25 a share, a bid the AGL board deemed below fair value, relative to the expected value of the proposed demerger.
“The revised unsolicited proposal continues to ignore the opportunity that AGL Energy shareholders have through our proposed demerger to realise potential future value,” AGL Energy chairman Peter Botten said.
“It also ignores the momentum we have recently seen in the business through our solid half-year result, strong progress on the demerger, strong interest in our Energy Transition Investment Partnership and the improvements we are seeing in forward wholesale prices.
“The proposed demerger will be a catalyst for the potential realisation of shareholder value. It will create two industry-leading companies with distinct value propositions. It will allow each business to be valued separately and more positively by the market on the basis of their own specific business fundamentals.
“We have defined distinct dividend policies and capital structures for each company that will support both future growth and appropriate returns to shareholders, as both organisations pursue their commitment to responsibly decarbonise without impacting energy reliability and affordability.”
US markets
Banks fell by 3.4% in response to lower bond yields. The energy sector rose 2.9% on the soaring oil price. Over the week the Dow lost 1.3%; the S&P 500 index lost 1.3% and the Nasdaq lost 2.8%.
As with most markets, the volatility is likely to continue for some time.
So much so, that Citi has lowered its year-end target for the S&P 500 by almost 8% to 4,700 (almost 9% above the current level) from 5,100, as the duration and extent of Russia-Ukraine conflict impacts on longer-term growth drivers "remain in flux".
"We expect that a higher geopolitical risk premium will negatively impact broader market expected valuations," Citi's chief US equity strategist Scott Chronert said.
"Implicitly, we see upside to US equities from here as the market narrative moves past the current perfect storm of headwinds, but to a level implying a flattish, to slightly down full-year return," he said.
Russian oil ban
The US is in “active discussions” with European nations to ban Russian oil imports. An outright boycott has not yet been mooted, but could be on the cards with Ukraine’s Foreign Minister Dmytro Kuleba saying Russian oil “smells of Ukrainian blood.”
The US is looking at ways to reduce US consumption of Russian oil while protecting American families from price hikes.
“We are now in very active discussions with our European partners about banning the import of Russian oil to our countries, while of course at the same time maintaining a steady global supply of oil,” US Secretary of State Antony Blinken told NBC talk show Meet the Press.
“The actions we’ve taken to date have already had a devastating impact on the Russian economy.”
Kuleba says things haven’t gone far enough, stressing that choking off Russia’s oil exports is crucial.
US and European gas prices have surged to record levels on supply disruptions.
Brent futures ended at $118.11 a barrel, the highest level since 2008.
European Commission president Ursula von der Leyen has yet to fully advocate an outright ban on Russian oil.
Other bans on Russia
TikTok, American Express Co. and Netflix Inc (NASDAQ:NFLX) have now suspended operations in Russia.
“In light of Russia’s new ‘fake news’ law, we have no choice but to suspend livestreaming and new content to our video service while we review the safety implications of this law. Our in-app messaging service will not be affected,” TikTok, which is owned by China’s ByteDance, said in a tweet Sunday.
Russia has passed a law that could result in prison time for anyone disseminating what authorities deem false information about the war in Ukraine.
CNN, the BBC and Bloomberg, among other news organisations, have suspended operations in Russia for their reporters’ safety, while Russia cut off access to Meta’s Facebook.
American Express, Visa (NYSE:V) Inc. and MasterCard Inc. have also shut down operations in Russia and Belarus.
AmEx cards will no longer work at Russian merchants or ATMs and cards issued by Russian banks on the American Express global system will no longer work outside the country.
“One of our company values is to ‘Do What is Right.’ This principle has guided us throughout our history and will continue to do so as we stand by our colleagues, customers, and the international community in hoping for a peaceful resolution to this crisis,” AmEx chief executive Stephen Squeri said in a statement.
Netflix said, “Given the circumstances on the ground, we have decided to suspend our service in Russia.”
European markets
European sharemarkets fell on Friday, with the major bourses tumbling more than 4%.
Like other bourses, news of the power plant attack took its toll.
Banks fell by 7.9% with carmakers down by 5.6%.
The pan-European STOXX 600 index fell by 3.6% to be down 7% over the week - the biggest fall in two years.
The German Dax index lost 4.4% with the UK FTSE index down by 3.5%.
In London trade, shares in Rio Tinto fell by 1.6% with shares in BHP down by 0.9%.