Biden says Ukraine tension is an invasion, triggers Wall St fall: ASX to edge lower

Market Reports

by Melissa Darmawan

Global markets closed mixed after Russia recognised two regions in Eastern Ukraine in breach of the Minsk agreement, before ordering troops in. S&P 500 officially in correction territory as geopolitical issues take the wind out of stocks. Renewed Beijing tech crackdown sends Asian stocks lower. AUD on watch as wage growth index figures are due today.

Good morning. Whipsawed by geo-politics. I’m Melissa Darmawan for Finance News. This is your market outlook.

The Australian sharemarket is set to edge lower after a round of sanctions were placed on Russia.

Geopolitical issues take the wind out of stocks

US stocks closed at session lows on the first trading day for the week after Wall St came back from a national holiday. The crisis between Russia and Ukraine intensified, creating a bullish run for oil prices putting the S&P 500 now in correction territory

Russian President Vladimir Putin has ordered troops into some regions of eastern Ukraine as world leaders moved to enact sanctions. During the session, President Biden announced new sanctions effective immediately on Russia. The sanction was to remove Russia’s government from access to western financial ties. Biden also added that the measures would target banks and Russian “elites”.

US officially calls Russia’s move an invasion

The White House officially called it an invasion to describe Russia's latest moves into those rebel eastern parts of Ukraine.

As this situation weighs on stocks, oil prices surged with expectation it would rise to US$100 a barrel. Russia is the main supplier of natural gas and oil to the European Union so tensions are causing unsettling situations throughout Europe for that very reason.

For consumers, it means higher prices at the pump even as President Biden attempted to get ahead of this move. Last week he talked about it as the situation unfolded and the likely impact on the wallets of consumers.

Today’s performance was a classic risk-off day, at one point utilities, real estate and healthcare were higher, treasury yields rallied as bond prices fell. Investors were concerned about contagion risk and how it will translate to inflation on soaring energy prices, derailing the economic recovery from the pandemic. But that changed in this volatile session, the 10-year yield ticked lower as investors bought into safe haven assets.

It’s funny to see that the word Covid has disappeared from the headlines with geopolitical issues, spreading faster.

US consumer confidence slumps

Speaking of inflation, consumer confidence slumped in February for a second month in a row, as prices continue to rise to its highest level in 40 years as per the Conference Board. The number of people planning to buy homes, cars, major appliances and vacations over the next six months fell as consumers saw higher prices.

Renewed Beijing tech crackdown sends Asian stocks lower

Meanwhile, fresh concerns over Beijing’s crackdown for the tech sector saw the Asian indexes fall. Shopping platform Meituan tumbled over 5 per cent after being told last week to reduce its prices. Alibaba sank over 3 per cent amid facing renewed scrutiny of its finance arm, while co-owner of TikTok, Tencent fell, denying a clampdown on its core business.

ASX best & worst performers on Tuesday

Elsewhere on the ASX, Cochlear (ASX:COH) surged 9 per cent after its first-half financial year 2022 net profit and interim dividend came in above consensus. Strong services revenue and growth in acoustic sales helped with its beat on costs coming in slightly higher. The ear device supplier maintained its net profit guidance despite the strong first-half result, suggesting a much weaker performance in the second half. They were the best performing stock closing at $207.37. It was followed by shares in Costa Group Holdings (ASX:CGC) and HUB24 (ASX:HUB).

The worst-performing stock in the S&P/ASX 200 was Nanosonics (ASX:NAN) after posting a 45 per cent tumble in profit in its half year results ending December, when compared to the second half of financial year 2021. The infection prevention company also flagged that its full year operating expenses are set to increase. The company tumbled 13.1 per cent at $4.10. It was followed by shares in Liontown Resources (ASX:LTR) and Tyro Payments (ASX:TYR).

Oil price ramp up

Despite the oil price surging, there’s the prospect of additional supply from Iran and potentially OPEC+ on the horizon. Yesterday, Iran Foreign Ministry spokesman Khatibzadeh cited that significant progress has been made in reviving the 2015 nuclear deal.

Amid this geopolitical issue, the various sanctions placed by world leaders, mounting escalation is set to be the catalyst for oil prices to hit triple digits.

Figures around the globe

At the closing bell, the Dow Jones lost 1.4 per cent to 33,597, the S&P 500 fell over 1 per cent to 4,305 while the Nasdaq dropped 1.2 per cent to 13,382.

Across the S&P 500 sectors, losses across the board. Consumer discretionary fared the worst, down 3.1 per cent, followed by energy, 1.5 per cent and materials. Utilities, real estate, and healthcare couldn’t keep those gains we talked about, they shed the least by up to 0.2 per cent.

The yield on the 10-year treasury note was flat in the volatile session to 1.93 per cent, gold rose on weaker greenback.

Across the Atlantic, European markets closed mixed. Paris closed flat, down 0.01 per cent, Frankfurt lost 0.3 per cent and London’s FTSE bucked the trend, adding 0.1 per cent with the help of oil majors, with Shell closing 0.5 per cent higher.

Asian markets closed lower. Tokyo’s Nikkei lost 1.7 per cent, Hong Kong’s Hang Seng dropped 2.7 per cent while China’s Shanghai Composite closed almost 1 per cent lower.

Yesterday, the Australian sharemarket closed 1 per cent lower at 7,161 dragged down by information technology shares which offset gains in energy, consumer staples and healthcare.

SPI futures

Taking all of this into the equation, the SPI futures are pointing to an 0.1 per cent fall.

Local economic news

With inflation rising and the unemployment rate down to 13-year lows, the Reserve Bank of Australia said it is prepared to be patient in hiking the cash rate. It has flagged that low wage growth is one of the reasons.

Today the Australian Bureau of Statistics is set to release the December quarter wage growth index. Economists are expecting a rise of 0.7 per cent for the period, pushing the annual rate to 2.3 per cent. If this was the case, the growth would be the highest annual pace in 2.5 years.

The RBA forecasted a 0.7 per cent gain in their most recent monetary policy statement so anything more could spur an earlier move in interest rate hikes. The central bank has shown some colour that it could raise rates before the end of the year, but markets are forecasting a hike as early as June with four more this year.

Reporting season

There are over 15 companies set to report today.

APA Group (ASX:APA)
Domino's Pizza Enterprises (ASX:DMP)
Healius (ASX:HLS)
Mcmillan Shakespeare (ASX:MMS)
Mcpherson's (ASX:MCP)
Michael Hill International (ASX:MHJ)
Pilbara Minerals (ASX:PLS)
Rio Tinto (ASX:RIO)
Scentre Group (ASX:SCG)
St Barbara (ASX:SBM)
Stockland (ASX:SGP)
Wisetech Global (ASX:WTC)
Woolworths Group (ASX:WOW)
Worley (ASX:WOR)

Ex-dividend

There are 15 companies trading ex-dividend today

AGL Energy (ASX:AGL) is paying 16 cents unfranked
Australian United Investment Company (ASX:AUI) is paying 17 cents fully franked
Codan (ASX:CDA) is paying 13 cents fully franked
Domain Holdings Aus (ASX:DHG) is paying 2 cents fully franked
Downer EDI (ASX:DOW) is paying 12 cents unfranked
Diversified United (ASX:DUI) is paying 7 cents fully franked
FSA Group (ASX:FSA) is paying 3.5 cents fully franked
IRESS (ASX:IRE) is paying 30 cents 15 per cent franked
JB Hi-Fi (ASX:JBH) is paying 163 cents fully franked
Magellan Financial Group (ASX:MFG) is paying 110.1 cents 75 per cent franked
MyState (ASX:MYS) is paying 12.5 cents fully franked
Navigator Global (ASX:NGI) is paying 7.6869 cents unfranked
Netwealth Group (ASX:NWL) is paying 10 cents fully franked
Sequoia Financial Group (ASX:SEQ) is paying 0.5 cents fully franked
SG Fleet Group (ASX:SGF) is paying 8.318 cents fully franked

Dividend-pay

There is one company set to pay eligible shareholders today, Djerriwarrh Investments (ASX:DJW).

Commodities

Iron ore has lost 1.6 per cent to US$136.75 as investors remain concerned about policy uncertainty and government intervention. Its futures point to a 2.6 per cent fall.

Gold has gained $3.10 or 0.2 per cent to US$1903 an ounce. Silver is up $0.19 or 0.8 per cent to US$24.23 an ounce.

Oil has gained $1.28 or 1.4 per cent to US$92.35 a barrel.

Currencies

One Australian Dollar at 8:25 AM has strengthened since yesterday buying 72.19 US cents (Tue: 71.96 US cents), 53.15 Pence Sterling, 83.08 Yen and 63.76 Euro cents.
 

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