Wild reversal on Wall St erases losses, Rising tension in Ukraine spooks: ASX to fall

Market Reports

by Melissa Darmawan

Wall St erased losses in a volatile session as investors monitor rising tensions in Ukraine. Stocks around the globe declined in the lead up of the Federal Reserve meeting. Inflation figures today ahead of Australia Day tomorrow. Fortescue Metals, Beach Energy, St Barbara and Illuka are set to release a quarterly trading update. UK court set to vote on BHP's unification proposal. ASX is closed on Wednesday.

The Australian sharemarket is ready to tumble after a wild session on Wall St.

Wild reversal as US stocks close higher

US stocks closed higher after they were heading towards their worst month since March 2020, when Covid-19 first led to widespread lockdowns. The Nasdaq fell deeper into its latest correction territory, at one point, heading towards bear market territory which is a 20 per cent decline from its recent high.

Investors dumped stocks, bought bonds as they fled risky assets. The S&P 500 officially hit correction territory in the session, the Dow was almost down 1,000 points, and the Nasdaq tumbled to almost 5 per cent earlier as gold rose.

Though in the final 10 minutes of trade, we saw a massive reversal. Stocks climbed with a massive scoop up of shares as conviction snapped back in for the longer term outlook. On a heavy volume day, the pain subsided and the Dow snapped its brutal six day losing streak

What were investors monitoring today?

So what happened earlier today? Investors were keeping tabs on a number of factors. Yes, we have the Federal Reserve expected to hike interest rates this year and trim its balance sheet. Market participants are closely monitoring when it will happen, and by how much. The central bank is set to kick-off a two-day meeting which will wrap up with a press conference by Fed Chair Jerome Powell on our Thursday morning, where we are likely to hear how the Fed is preparing to suppress inflation.

Also earnings season is in full swing with some mixed results. Most companies are exceeding earnings expectations, but many of them are reporting rising costs and higher expenses, largely due to inflation, as well as paying their workers higher wages. We saw some disappointing results last week from Goldman Sachs and Netflix with both those stocks falling quite notably in the wake of those results.

Thirdly, investors are closely monitoring rising tensions between the US and Russia as a situation at the border with Ukraine intensifies amid concerns that Russia is preparing to invade Ukraine. The US is potentially ready to deploy 5000 troops to Europe to help out with Ukraine and Ukraine's allies, with over 100,000 Russian troops near the border of Ukraine.

I interviewed Jun Bei Liu, Portfolio Manager of the Tribeca’s Alpha Plus Fund on the key issues investors are set to face for 2022. Let’s take a listen to what she said about how markets are likely to react in the face of this. The full interview is available here.

Elsewhere, crude prices dived as investors were spooked amid this environment, with panic selling defying market fundamentals pointing to a rise in oil prices.

With the drums of war beating, uncertainty is mounting. The Beijing Olympics is coming up on 4 February with President Putin expected to meet President Xi at the opening ceremony. Very interesting times ahead as we start of 2022 in the most volatile manner.

Figures around the globe

At the closing bell, the Dow Jones gained 0.3 per cent to 34,365, the S&P 500 added 0.3 per cent to 4,410 while the Nasdaq closed 0.6 per cent higher at 13,855.

Across the S&P 500 sectors, there were only three losers. Utilities fell the most by 1 per cent followed by healthcare, and consumer staples. Consumer discretionary was the best performer by 1.2 per cent, followed by energy and industrials.

The yield on the 10-year treasury note rose 3 basis points to 1.77 per cent, gold rose on a firmer greenback.

Across the Atlantic, in the lead up to this volatile performance, European markets closed lower. Paris slumped almost 4 per cent, Frankfurt tumbled 3.8 per cent and London’s FTSE sank 2.6 per cent dragged lower by miners and oil majors. BHP and Rio lost around 3.7 per cent, BP lost 4.8 per cent while Shell closed 3.4 per cent lower.

Asian markets closed mixed. Tokyo’s rose 0.2 per cent, Hong Kong’s Hang Seng lost 1.2 per cent and China’s Shanghai Composite eked out a 0.04 per cent gain.

ASX touches 8-month lows

Yesterday, the Australian sharemarket closed 0.5 per cent lower at 7,140. The pain continued to swell after last week’s fall with the local bourse touching eight-month lows.

The iron ore giants had a terrible day despite the support in the commodity price, with materials and technology leading declines. Property, consumer staples, and communication services edged higher.

News from Fortescue Metals (ASX:FMG) didn’t impress, dragging the materials sector lower, tumbling 2 per cent. There were two sets of news. Firstly, the company agreed to a deal with China's Sinosteel to complete a rapid project assessment of Sinosteel’s Midwest Magnetite Project, including a rail and port development at Oakajee.

Pending the outcome of the 12-month assessment, Fortescue would then have the option to acquire up to 50 per cent of the Midwest Magnetite Project and up to 100 per cent of the proposed port and rail infrastructure project.

Meanwhile, Fortescue will buy UK-based Williams Advanced Engineering (WAE) for $310 million (£164 million) from private equity investor EMK Capital and the Williams Grand Prix Engineering group. This company develops high-performance battery and electrification systems. Fortescue have been working with the company to create a prototype battery system to power its haulage trucks since early last year. Rio Tinto (ASX:RIO) fell 0.7 per cent, while BHP (ASX:BHP) closed 0.2 per cent lower.

In the M&A space, Uniti (ASX:UWL) shared that they’ve received interest from at least two parties in buying the company with nothing set in stone yet. They were the best performing stock on the ASX 200 closing 9.3 per cent higher at $4.12. It was followed by shares in Goodman Group (ASX:GMG), and Corporate Travel Management (ASX:CTD).

The worst-performing stock was Regis Resources (ASX:RRL), closing 14.3 per cent lower at $1.80. It was followed by shares in Imugene (ASX:IMU) and Life360 (ASX:360).

Regis Resources (ASX:RRL) cut its guidance for financial year 2022 production by 8 to 9 per cent to 420,000 to 475,000 ounces. The company said that heavy rain at its Rosemont Main Pit blocked access to some high-grade ore, along with "other operational challenges".

Elsewhere, Adairs (ASX:ADH) cratered 21.5 per cent at $2.99 after the homewares retailer said that underlying earnings before interest and tax for the first half of FY22 is down 45 per cent a year ago by $32 million to $33 million. The company attributed the loss to store closures and the costs of supply chain disruptions.

SPI futures

Looking ahead, taking all of this into the equation, the SPI futures are pointing to a 1.3 per cent fall.

Local economic news

ANZ and Roy Morgan are set to release their weekly consumer confidence figures and the NAB business survey results for December are due.

Though the news that is likely to take the most attention is the consumer price index figures by the Australian Bureau of Statistics for the December quarter. Economists are expecting a rise of 1 per cent largely reflecting higher petrol prices and a rise in the cost of new housing.

This would take the annual rate to 3.1 per cent, up from 3 per cent as of the September quarter, spilling over the RBA's 2 to 3 per cent target by a hairline.

Core inflation, the trim mean, so the measure of inflation that smooths out the volatility is forecast to rise 0.7 per cent in the December quarter, taking the annual rate to 2.4 per cent, and up from 2.1 per cent from the previous quarter. This is above the 2.25 per cent forecast by the Bank in November.

The meeting minutes said that if “better than expected progress towards the Board’s goals was made then the case to cease bond purchases in February would be stronger”.

This comes after the jobless rate fell to its lowest level in 13 years to 4.2 per cent in December. Governor Philip Lowe has repeated many times that he won’t raise interest rates until unemployment has fallen to 4 per cent and wage growth rises to 3 per cent. Unemployment is close to that requirement, but wage growth is only at 2.2 per cent.

So it poses a very interesting conversation after the unveiling of these inflation figures when the Reserve Bank board meets on February 1. Keep all of this in mind when we receive the numbers today at 11.30am AEST.

Trading updates 

Fortescue Metals (ASX:FMG), Beach Energy (ASX:BPT), St Barbara (ASX:SBM), and Illuka Resources (ASX:ILU) are set to release a trading update, with an outcome from the UK court to vote on BHP's unification proposal on the horizon.

Commodities

Iron ore has lost 2.7 per cent to US$133.70. Its futures are pointing to a fall of 1.9 per cent.

Gold has added $11.00 or 0.6 per cent to US$1,845 an ounce. Silver is down $0.33 or 1.4 per cent to US$23.99 an ounce.

Oil has fallen $1.34 or 1.6 per cent to US$83.80 a barrel.

Currencies

One Australian Dollar at 8:15 AM has weakened since yesterday buying 71.46 US cents (Monday: 71.78 US cents), 52.97 Pence Sterling, 81.46 Yen and 63.09 Euro cents.
 

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