US stocks gained early on Friday before sliding. The Dow was down for five straight weeks as America and its allies looked to ratchet up economic pressure against Russia.
The Dow fell about 230 points, or 0.7%, to end below 33,000 for the week. This was the longest weekly stretch of losses for the blue-chip index since May 2019.
President Joe Biden called for a suspension of normal trade relations with Russia on Friday, causing the skittishness in the market.
The S&P 500 index shed 1.3% and the Nasdaq Composite lost 2.2%. For the week, the Dow lost 2%, the S&P 500 2.9% and the Nasdaq shed 3.5%.
Despite Wall Street’s losses, the ASX is predicted to start higher today, following in Europe’s footsteps where stocks finished higher, with the mining-heavy UK’s FTSE 100 up 0.8%.
ASX SPI 200 futures are trading 0.3% higher to 7071 after the benchmark index finished the week in the red, down 0.9%.
Meanwhile, oil price will again dominate the week. Global oil prices rose by 3.1% on Friday. A potential collapse in talks between the US and Iran to revive a 2015 nuclear agreement was the catalyst for the price rise. If talks are successful, it may allow Iran to lift crude supplies on the global market.
However, on the weekend Britain, France and Germany warned against moves to “exploit” the Iran nuclear negotiations.
Despite almost sealing a deal to revive the 2015 Joint Comprehensive Plan of Action (JCPOA) to contain Iran’s nuclear activities, talks stalled after Russia said it was demanding guarantees that the Western sanctions imposed on its economy following its invasion of Ukraine would not affect its trade with Iran.
“Nobody should seek to exploit JCPOA negotiations to obtain assurances that are separate to the JCPOA,” spokespersons for the British, French and German foreign ministries said in a ststement.
“This risks the collapse of the deal, depriving the Iranian people of sanctions lifting and the international community of the assurance needed on Iran’s nuclear programme,” they added.
Here’s what we saw (source Commsec):
- The Euro fell from highs near US$1.1040 to lows near US$1.0900 and was near US$1.0909 at the US close.
- The Aussie dollar fell from highs near US73.55 cents to lows of US72.81 cents and was at US72.90 cents at the US close.
- The Brent crude price rose by US$3.34 a barrel or 3.1% to US$112.67 a barrel.
- The US Nymex crude price rose by US$3.31 or 3.1% to US$109.33 a barrel. Over the week Brent crude fell by US$5.44 or 4.6% while Nymex fell by US$6.35 or 5.5%.
- Base metal prices were mixed on Friday. Nickel, lead and zinc fell by as much as 1.2%. Other metals rose 0.6-1.5% with aluminium up the most. Over the week metals fell 5.2-10.8% but nickel rose 62.9%.
- The gold futures price fell by US$15.40 or 0.8% to US$1,985 an ounce. Spot gold was trading near US$1,985 an ounce at the US close. Over the week gold rose by US$18.40 or 0.9%.
- Iron ore shed US$1.85 on Friday or 1.2% to US$154.50 a tonne. Over the week iron ore rose by US$2.10 or 1.4%.
Australian market
Members of the coalition have called on the government to cut the excise tax on petrol, which currently stands at 44 cents per litre.
It comes at a time when prices are hovering around the $2.20 mark in city and suburban centres and are even higher in regional centres.
The fuel excite is a flat tax that pays for infrastructure.
South Australian Liberal Premier Steve Marshall is using his re-election campaign to call for the cut, while members of the federal parliament including Queensland Liberal National senator Susan McDonald said, "The idea of pausing the fuel excise, or a portion of it, I think is something that we're going to have to look at.
"Because we just can't afford to absorb the prices that we're looking at currently."
Victorian Nationals MP Anne Webster contacted the Treasurer to see what could be done. "I contacted the Treasurer's office last week about this notion of the excise being reduced to ease the burden for residents," she said
"The information I got back on that was that at that point in time, it was not on the table."
The argument against a cut is the damage it would do to infrastructure spending.
"The road network is very important to my constituents, and that fuel excise goes towards the maintenance and construction of country roads," Nationals MP Mark Coulton said.
"So it may be a discussion, but I wouldn't be rushing into this."
Deloitte Access Economics economist Chris Richardson says it is too early to make the call.
"These sort of tax bandaids are easy to go on, but they are horrendously hard to come off," he said.
"It may already be last week's problem.
"The prices people are paying at the pump today are because of where oil was at the start of last week.
"It's already about $US1 a litre lower a barrel in markets. If it stays there, that could be anything up to 15c a litre lower in the next week or two in Australia."
Prime Minister Scott Morrison is pointing to the upcoming budget to guidance on the matter.
He says he is looking to ease cost of living pressures, but petrol prices must be addressed at a global level.
US market
Inflation and the higher cost of living is also the talk of the town in the US as the Federal Reserve gets sets to raise interest by .25% to curb inflationary pressures.
“After a 25bp hike at the March meeting, we see the Fed delivering an additional five 25bp rate hikes this year, followed by four hikes in 2023 to end the year at 2.625%,” Morgan Stanley (NYSE:MS)’s economics team said in a note.
As with most countries, the US is managing surging prices for fuel, food and housing, which has led inflation to its highest point in four decades.
The rate hike is complicated by the current war and wide-ranging sanctions imposed on Russia that have disrupted trade flows and undermined the county’s economic recovery.
The announcement to raise rates is set for Wednesday.
“The Fed is being tugged in two different directions by the massive increase in energy prices that’s taken place over the last few weeks,” David Wilcox, a former senior advisor to three successive Fed chairs, told AFP.
Higher inflation justifies the tightening moves, however “the reduction in purchasing power that households are experiencing … would call for a more accommodative stance of policy, a more cautious approach,” Wilcox, who is now with the Peterson Institute for International Economics and Bloomberg Economics said.
“I suspect the Fed will buy themselves some time to see how the Ukraine situation unfolds,” said Andrew Mitchell, a portfolio manager at Ophir Asset Management.
“This meeting is one of the quarterly ones where they update their projections or ‘dot plots’ and we’ll probably see that [forecast] double to six 0.25% rate hikes this year, up from just three expected last December.”
On the market side, Technology fell the most with Apple down 2.4% and Tesla down 5.1%.
European markets
Rose on Friday, with banks gaining 0.2% to be up 4.5% on the week. Data showed that the UK economy grew 0.8% in January after falling 0.2% in December.
The pan-European STOXX 600 index rose by 1.0% on Friday to be up 4% on the week. The German Dax index lifted by 1.4% and the UK FTSE index rose by 0.8%.
In London trade, shares in Rio Tinto rose by 1.2%, but BHP shares fell by 1%.
The French have the right idea
The French government has unveiled a 2 billion euros ($3 billion) package to help consumers struggling with soaring fuel prices.
French Prime Minister Jean Castex announced the French government would reduce petrol and diesel prices by 15 centimes per litre.
The state reimburse gas station owners for the difference.
“That means every time you fill up for 60 euros, you save around nine euros,” Castex said.
Like Australia, the French government is under pressure to cut fuel taxes ahead of presidential elections next month: more than half of prices at the pump in France are made up of taxation.