Wall St rose, European markets fell, ASX jumped after traders continued to adjust their stance on the signs forward around interest rate lift-off. Russia vs Ukraine, what it means from a global inflation and GDP lens. Does the Olympic Truce have a role to play? Central banks dominate the agenda this week.
The Australian sharemarket is set to dip after rounding out an extremely volatile week.Apple shares ripe for picking sends Wall St higher
US stocks closed at session highs after rallying from session lows, buoyed by strong results from Apple. There's the saying, “so goes Apple, so goes the market”. Apple skyrocketed 7 per cent after posting record revenue in the latest quarter, while Visa also popped by almost 11 per cent on surprisingly strong results.
Over the week, the Nasdaq is down more than 10 per cent from its November recent high, the Dow did move in a 1,000 plus point range last Monday, and the S&P 500 swung in a two and a quarter percentage point range every single day last week, which rarely happens.
It’s been a rather messy performance as investors readjust and digest the latest signs from the Fed, the path forward for interest rates and what it means for some of these growth stocks with valuations based on future profit growth.
What is clear is that Fed Chair Jerome Powell is very data dependent on the rate path, and is conscious about the upside risks to inflation.Economic data strengthens inflation story
On Friday, data points reinforced the Fed’s need to tighten. Wage pressures hit its highest level in two decades, the Fed’s preferred inflation gauge, core personal-consumption ticked higher, while the central bank is also closely watching employers costs, which eased from 30 year highs compared to the previous quarter in December, but it’s still quite elevated.
Market participants are waiting for a clear signal from the Fed around their bond buying program. If the central bank announced the end of their asset purchases program, it would have sent a definite signal for rate lift-off in March. It appears the central bank is giving the impression that they have a plan to tighten enough to combat inflation, but not send markets tumbling creating a de-risking environment.Russia vs Ukraine
Now, we can’t go past what is happening between Russia and Ukraine. Markets have become increasingly nervous the past few weeks which has supported the energy sector as the best performer for the year. Not only as beneficiaries from the reopening of economies, but amid the rise in commodity prices and the depreciation of the Russian currency.
Without going through the multiple outcomes on what could happen, I want us to focus on what it means from an external trade point of view. Russia deals mainly with Europe, Asia and the US, but mainly China in particular and Europe as per Comtrade.
Commodities make up a large proportion of Russia’s exports so it’s only normal for nerves to mount in this area. Russia is the second-largest producer of natural gas globally, and it has 12 per cent market share among global oil producers. Any disruptions could send these commodity prices higher.
Meanwhile, Russia and Ukraine are the world’s leading wheat exporters, while Ukraine is the fourth-largest corn exporter. They also play in the base and precious metals space but you get the gist, their contribution globally isn’t small.
The impact to the global GDP would be significant, inflation will catapult higher and persist. Global inflation is at 4.35 per cent year on year as per Statistica, so if an adverse event happens, analysts forecast global inflation up over the 7 per cent as an annualised rate. That is huge. This on top of the likely sanctions imposed on Russia, the impact on consumer sentiment, financial conditions, and the behaviour from the central bank to handle this, and the effect on currencies. Not a great recipe given the pandemic backdrop. Something to keep in mind when watching the energy market between now and post olympics in China.Olympic Truce
Remember that the International Olympic Committee revived the concept of Olympic Truce to protect the interests of the athletes and the sport, and promote peace, dialogue and reconciliation more broadly. There could be a lot of prodding between now and then between these countries, peace during the Olympic games and then what happens after, well, that can take its own course.
So if we pivot back to our market, you might ask, are there any opportunities with Aussie energy companies to step in with supply? Let’s go through the time it takes to ship gas. Shipping from WA to Europe takes around three weeks, and from Queensland, around a month. This compares to a fortnight between Qatar and Europe, and about 12 days from the US according to S&P Global Platts, so you never know.Volatility our “new normal?”
The January barometer, a gauge on how the year could unfold, has seen the needle move violently. It looks like choppiness is going to be our “new normal” for 2022 as we brace ourselves for financial conditions to tighten.
Let’s see how inflation reacts after interest rate lift-off, amid supply chain disruptions easing. It could be “transitory” after all.Numbers on Wall St
At the closing bell, the Dow Jones gained 1.7 per cent to 34,725, the S&P 500 advanced 2.4 per cent to 4,432 while the Nasdaq jumped 3.1 per cent to 13,771.
Across the S&P 500 sectors, nearly every sector moved higher except energy. The group has taken a breather, down 0.6 per cent. Like the tech index outperforming on Wall St, so did technology shares on the S&P as they were the best performer, jumping 4.3 per cent, followed by real estate, and communication services.
The yield on the 10-year treasury note 3 basis points to 1.78 per cent, gold dipped on firmer greenback.Figures around the globe
Across the Atlantic, European markets closed lower. Paris fell 0.8 per cent, Frankfurt lost 1.3 per cent and London’s FTSE dropped 1.2 per cent.
On the London Stock Exchange, BHP fell 2.5 per cent, Rio dropped 3.3 per cent, BP declined 1.8 per cent and Shell dipped 1.2 per cent.
Asian markets closed mixed ahead of the Lunar New Year holiday. Tokyo’s Nikkei added 2.1 per cent, Hong Kong’s Hang Seng lost 1.1 per cent and China’s Shanghai Composite closed almost 1 per cent lower.ASX snaps losing streak as BHP dominates volume
On Friday, the Australian sharemarket closed 2.2 per cent higher at 6,988 climbing its way out of correction territory. Volume was heavy at $38.4 billion, with BHP (ASX:BHP)
making up for $18.3 billion, over 50 per cent of trades ahead of the unification today as fund managers, ETF providers, traders readjust their portfolios ahead of the index weighting changes. All sectors rallied led by consumer discretionary while energy stocks added the least.
Over the week, the local bourse sank 2.6 per cent and is down 6.3 per cent for the year, amid the 10-year Aussie bond yields up 40 basis points this month.SPI futures
Taking all of this into the equation, the SPI futures are pointing to a 0.2 per cent fall.What to look out for this week
It’s a big week of central bank talk with the Eurozone unveiling its GDP for the December quarter. On Tuesday, the Reserve Bank is set to meet for the first time this year, then we will hear from Governor Philip Lowe on Wednesday while OPEC+ is set to meet to provide direction on production plans from March. On Thursday, we have rate decisions from the European central bank and the Bank of England, then on Friday, RBA is set to release the statement of monetary policy and we have the big jobs report in the US.
Not to mention the slew of companies slated to report on Wall St with GM, Alphabet, Meta, Amazon and Ford on the cards.
Back home, we have IGO (ASX:IGO)
, Amcor (ASX:AMC)
, Janus Henderson (ASX:AHG)
, News Corp (ASX:NWS)
, and REA Group (ASX:REA)
among the many reporting.
will provide a quarterly trading update on Thursday.
China markets will be closed for Lunar New Year this week which means we might not hear much activity around the metals and iron ore market.
Today, the Reserve Bank is set to release the private sector credit data for December and keep an eye out for the inflation gauge for January by the Melbourne Institute.Ex-dividend
There are four companies trading ex-dividend today
CVC Limited (ASX:CVC)
is paying 4 cents fully franked
Metrics Income Opportunities Trust (ASX:MOT)
is paying 0.98 cents unfranked
Metrics Master Income Trust (ASX:MXT)
is paying 0.74 cents unfranked
Partners Group Global Income Fund (ASX:PGG)
is paying 0.6833 cents unfrankedDividend-pay
There are six companies set to pay eligible shareholders today
Kelly Partners Group Holdings (ASX:KPG)
Plato Income Maximiser (ASX:PL8)
Regal Investment Fund (ASX:RF1)
Rural Funds Group (ASX:RFF)
Shopping Centres Australasia Property Group (ASX:SCP)
Spheria Emerging Companies (ASX:SEC)Quarterly updates
There are 47 companies set to release quarterly updates with De Grey Mining (ASX:DEG)
on the table.Commodities
Iron ore has gained 6.6 per cent to US$147.90. Its futures are pointing to a rise of 7.6 per cent.
Gold has lost $8.40 or 0.5 per cent to US$1787 an ounce. Silver is down $0.37 or 1.7 per cent to US$22.30 an ounce.
Oil has added $0.21 or 0.2 per cent to US$86.82 a barrel.Currencies
One Australian Dollar at 7:20 AM has weakened since Friday (70.32 US cents), buying 69.92 US cents, 52.21 Pence Sterling, 80.59 Yen and 62.77 Euro cents.