The US has officially banned Russian oil imports, while Britain said it will phase out the import of Russian oil and oil products by the end of 2022. Biden’s move sent Wall Street tumbling further.
“The US is set to announce a ban of imports of Russian oil, in a further escalation of its stand-off with Russia. This could boost oil prices towards $150/bbl., a new all-time high, as markets fear further supply disruption,” said eToro Global market Strategist Ben Laidler.
“These US restrictions will likely be unilateral, with Europe remaining on the restriction sidelines for now, given its much greater dependence on Russian energy. Russia produces 11% of the world’s oil but supplies 30% of Europe’s oil needs and 40% of its natural gas. By contrast, Russian oil imports make up under 1% of US oil consumption.
“Soaring oil prices will worsen the near-term global economic outlook, by both slowing growth and boosting already high inflation. The only silver linings are that global growth is currently robust. Whilst ‘the solution to high oil prices is high oil prices’ as consumers are increasingly driven to cut demand by the surging cost.”
Crude prices soared on the US ban of Russian oil imports.
"We've seen important developments with respect to US and UK moves on the oil market, and certainly the possibility of further action exists on sanctions and restrictions on imports of Russian energy. So, this situation could become more acute and certainly one has to plan for that," former Bank of England governor Mark Carney said.
Carney, the former governor and Brookfield Asset Management (TSX:BAM.A)'s vice chair and head of transition investing, told a Sydney conference, "Really all options are necessary in order to address the energy shortfall that exists in the present.
"Europeans could do two things with respect to the energy market at one time. One is to address the current pressures which are significant. But secondly is to take a step back and say where is the transition going and what needs to be done in a world where Europe cannot rely on Russian gas. And that's clearly the world we're in," Carney says.
"Prospectively a responsible energy policy would not rely on Russian gas and with any of the solutions, there needs to be more than one as there is no one magic bullet. Any of the solutions to that transition are going to take three to five-plus years to deploy at scale.
“But given the centrality of the transition to the Europeans priorities, given the raw economics of clean power and given the availability of clean power, I'm very confident we're going to see an acceleration over the medium term of the transition in European markets."
Nickel prices also reached a record peak before the London Metal Exchange suspended its trading.
On the commodities front, Simon Popple, author of the Brookville Capital Intelligence Report, explains to Proactive’s Andrew Scott why he's predicting an 'incredible run' in commodity prices.
Here’s what we saw (source Commsec):
- The Euro rose from lows near US$1.0850 to highs near US$1.0955 and was at US$1.0905 in afternoon US trade.
- The Aussie dollar fell from highs near US73.10 cents to lows near US72.45 cents and was at US72.70 cents in US trade
- Global oil prices rose by approximately 4%.
- The Brent crude price rose by US$4.77 a barrel or 3.9% to US$127.98 a barrel. And the US Nymex crude price rose by US$4.30 or 3.6% to US$123.70 a barrel.
- Base metal prices were mixed. Aluminium fell by 7% and copper and zinc fell by less than 1%. Tin rose by 4%.
- The London Metal Exchange halted trading in nickel after it doubled in price. Three-month nickel was up 66% at US$80,000 a tonne when trading was stopped, having earlier been driven to a record US$101,365.
- The gold futures price rose by US$47.40 or 2.4% to US$2,043.30 an ounce.
- Spot gold was trading near US$2,050 an ounce in US trade.
- Iron ore fell by US50 cents or 0.3% to US$162.25 a tonne.
Australian market
As Prime Minister Scott Morrison labels the catastrophic floods on the East Coast of Australia a national emergency, hopefully that will free up not only funds but also the red tape that has slowed down the recovery effort.
Australia just can’t catch a break at the moment.
NSW Premier Dominic Perrottet has announced an emergency relief package offering businesses impacted by this major weather event up to $50,000 in support.
The Flood Disaster Recovery Small Business Grants will provide a lifeline to small businesses and non-profits.
"We will do everything we can to ensure the people and businesses hit by these floods get back on their feet," he says.
"We understand the pressure that small businesses are facing and successful applicants should expect to see funds in their accounts within 5 to 10 business days."
Meanwhile, RBA governor Phillip Lowe has given the strongest indication yet, that interest rates will rise saying the Ukraine/Russia war may speed up policy.
"There is a risk if these higher inflation rates are sustained as a result of a sequence of negative supply shocks, that wages growth picks up more quickly than forecast as workers seek compensation for the higher inflation," Lowe told a business summit.
"In this uncertain environment – and with the starting points for wages growth and underlying inflation in Australia – we can take the time to assess the incoming information and review how the uncertainties are resolved.
"Given the outlook, though, it is plausible that the cash rate will be increased later this year."
Australia in a holding pattern
Credit reporting bureau CreditorWatch has launched its latest ‘Business Risk Index’ reflecting on February’s business activity. The latest results reveal our nation is in a holding pattern as it emerges from the Omicron storm.
The data has shown that trade receivables have reversed their recent decline. However, it remains too early to see the effects of the disastrous east coast floods which will likely suppress the positive trade data in next month’s results.
Another positive sign of growing business confidence is the increase in credit enquiries, up 55% from January to February, indicating companies are ready to invest in growth.
CreditorWatch does expect insolvencies to dip next month as support packages for flood-affected areas arrive and banks offer ‘loan-repayment holidays’, but also anticipates a sharp rise in these regions as rejected insurance claims, losses from uninsured businesses and loss of income starts to hit home.
Key highlights from the February Business Risk Index:
- There was a small increase in trade activity for February - an encouraging sign but too early to indicate the beginning of a sustainable pick up in trade activity. The impact of the east coast floods is yet to be seen in CreditorWatch’s data, but will undoubtedly drag down trade activity.
- Credit enquiries were at 211,357 for February – the highest monthly number since November 2021 and second highest since July.
- Court actions have seen a significant increase in the last quarter when compared to the corresponding period last year. We are seeing early signs of enforcement and collections activities returning to normal.
- External administrations increased 29%from January to February.
- Trade payment defaults jumped 35% from January to February.
- The net result of the CreditorWatch Business Risk Index and our broader credit indicators is that trade activity remains subdued with the impending economic impacts of the east-coast floods expected to exacerbate this.
US market
The biggest news was, of course, Biden’s ban on Russian oil imports.
"Russian oil will no longer be acceptable at US ports and the American people will deal another powerful blow to Putin’s war machine," Biden said while noting the ban would cost Russia billions of dollars in US purchases.
“We are united with our Allies and partners in working together to reduce our collective dependence on Russian energy and keep the pressure mounting on Putin, while at the same taking active steps to limit impacts on global energy markets and protect our own economies.
“We will not be part of subsidising Putin's war … We can take this step when others cannot.”
Unlike Europe, Russia only contributes about 7% of US oil.
Meanwhile, Coca-Cola Co. is suspending its business in Russia.
“Our hearts are with the people who are enduring unconscionable effects from these tragic events in Ukraine,” Coca-Cola said in a statement.
“We will continue to monitor and assess the situation as circumstances evolve.”
PepsiCo (NASDAQ:PEP) Inc. is exploring options for its business in Russia.
Coca-Cola shares were down 3.5% heading into the close, while Pepsi shares were down 2.3%.
As for the broader markets, US sharemarkets were volatile. Banks rose 2.2% in response to higher bond yields.
At the close of trade, the Dow Jones index was down by 185 points or 0.6% after earlier being down 239 points and up by 586 points. The S&P 500 index was down by 0.7% and the Nasdaq was lower by 35 points or 0.3%.
European markets
European sharemarkets were mixed on the oil import ban news.
Banks rose 2.5% in response to higher bond yields. A key inflation measure tracked by the European Central Bank lifted to 9-year highs.
Technology led the declines (down 2.5%) with materials down 1.1% and healthcare down 1%.
The pan-European STOXX 600 index fell by 0.5%.
The German Dax index lost less than 0.1% but the UK FTSE index was up by 0.1%.
In London trade, shares in Rio Tinto fell by 2.2% while shares in BHP were lower by 2.8%.