Reel to recovery snaps S&P500 2-week losing streak: ASX to rally

Market Reports

by Melissa Darmawan

Global major indexes rallied from oversold territory on Friday as dip buyers emerged amid Putin painting red on Ukraine. Extended sanctions from the West helped market reprieve with talks over the weekend with the US and Europe set to to cut Russian banks out of the SWIFT payments system. Reporting season to end today.

The Australian sharemarket is ready to roar to close off the month after US stocks rallied for a second day, rounding out a volatile shortened trading week.
 
Markets swing like a pendulum

The Ukraine crisis dominated headlines with the S&P 500 falling into correction territory on Thursday then marched 2.2 per cent higher for the week. The Dow booked its best day of the year on Friday after recording its worst the day before. The Nasdaq was in bear market territory and staged a 1.6 per cent rise for the week. The 10-year treasury yield went from 1.85 per cent to closing shy of 2 per cent. Oil hit triple digits before easing, gold fell below US$1,900 level while the ASX closed 3.2 lower for the week, amid a strengthening Aussie dollar.

Factors triggering markets

With what happened, there are a few things to know - the markets were driven by a range of factors. Yes, Ukraine was front and centre, but there were also company earnings, buybacks, companies trading ex-dividend, and month-end rebalancing. So there was a lot of activity which didn’t relate to the headlines coming from the Russian incursion.

Contributing to the volatility was the slapping of sanctions in a bid to minimise the funding of war operations by Russia. The second round of sanctions weren’t as crippling as market participants thought which gave some reprieve. It didn’t target Russia’s oil and gas, only on the elite persons, and banks.

Despite the extended sanctions missing Russia’s oil and gas, we are in a tight oil market. This week, OPEC+ are expected to keep to its gradual output increase of 400,000 barrels per day in April. Also, there are high chances that they won’t make their quota which means oil prices remain supported at US$90 a barrel.

However, if we overlay this with Russia’s role in the energy play, a third of their oil exports go through Ukraine. So even if there aren’t sanctions in this area, if a situation arises where oil flows can’t get through, higher prices are poised with the risk of stagflation.

Current inflation is more than double the European Central Bank’s target so if this was to occur, it would mean that inflation would creep higher, growth would be slower and disposable income would be eroded by inflation, along with the consumer sentiment shock that now they have less to spend. Something to be aware of.

Wall of worries lingers

Adding to this, if we bring our attention to the start of last week, there were other matters that had investors climb multiple walls of worries. Firstly, inflation, in particular what it means for margins given the strong earnings we’ve seen. Secondly, supply chain disruptions, lastly interest rate hikes and changes in monetary policy.

ASX whipsawed on results

This was particularly pronounced after the nation’s two supermarket giants Woolworths Group (ASX:WOW) and Coles Group (ASX:COL) unveiled strong half-year results. Investors looked beyond the common thread of how pandemic related challenges weighed. The Omicron wave saw staff calling in sick for isolation reasons, inflation was eating into costs of goods and packaging, plus supply chain challenges. All this does hit a business whose model works on low margins, and high volume to create revenue.

Other than the whipsaw abroad, we saw a week of double digit percentage swings, everyday on the local bourse.

AGL Energy (ASX:AGL) soared almost 11 per cent on a rejected takeover offer from Mike Cannon-Brookes and Brookfield. Tyro Payments (ASX:TYR) tumbled 26 per cent on shrinking margins. Nanosonics (ASX: NAN) lost 13 per cent on imminent higher costs. Domino’s Pizza’s (ASX: DMP) share price melted 14 per cent on lukewarm growth outlook. Engineering company CIMIC (ASX:CIM) skyrocketed 33 per cent on a takeover offer, and Block (ASX: SQ2) soared 36% after blowing results out of the water.

Outlook

So we saw traders put risk back on the table, as dip buying emerged. With the war in Ukraine, markets will be jittery as the duration and the degree of the situation remains unknown. All this comes as inflation sits at multi-year highs. Adding to the uncertainty, we welcome March with a plate of central bankers in a difficult position amid this environment.

We have the RBA board meeting tomorrow, ECB on March 10, Federal Reserve on March 16, and Bank of England on March 17. How much do the events of today, the coming weeks, months, and hopefully not years change the next central bank move?

We’ll get a glimpse of it after we hear from governor Philip Lowe tomorrow, on his view of the situation and the impact on Australia's economic outlook.

Figures around the globe

At the closing bell, the Dow Jones gained 2.5 per cent to 34,059, the S&P 500 rose 2.2 per cent to 4,385 while the Nasdaq climbed 1.6 per cent to 13,695.

Across the S&P 500 sectors, we ended the two weeks of sell-off. The significant bounce back was led by materials, up 3.6 per cent, followed by financials and utilities at 3.2 per cent. Information technology added the least, up 1.4 per cent.

The yield on the 10-year treasury note was steady at 1.96 per cent, investors came out of the safe haven gold amid a weakening greenback.

Across the Atlantic, European markets closed higher. Paris gained 3.6 per cent, Frankfurt added 3.7 per cent and London’s FTSE jumped 3.9 per cent.

On the London Stock Exchange, Rio gained 3.7 per cent, BP added 3.6 per cent and Shell rose 2.4 per cent.

Asian markets closed mixed. Tokyo’s Nikkei added over 2 per cent, Hong Kong’s Hang Seng fell 0.6 per cent while China’s Shanghai Composite added 0.6 per cent.

On Friday, the Australian sharemarket closed 0.1 per cent higher at 6,998.

SPI futures

Taking all of this into the equation, the SPI futures are pointing to 2.4 per cent gain.

Local economic news

We saw retail sales retreat in December after we saw pent up spending drive sales to record highs in November. Will the voluntary lockdown in January amid the Omicron wave dent retail spending?

Today, the Australian Bureau of Statistics is set to release retail sales for January with market expectations of 0.4 per cent rise.

Keep an eye out for December quarter business indicators also by the Bureau. Elsewhere, the February inflation gauge by the Melbourne Institute is due and the Reserve Bank has scheduled its January private sector credit report.

Reporting season

Today is the last day of the reporting period with a few companies spilling over to March, but we are close to the end.

Bank of Queensland (ASX:BOQ)
Dicker Data (ASX:DDR)
Invocare (ASX:IVC)
Zip Co (ASX:Z1P)

Ex-dividend

There are several companies trading ex-dividend today.

Aurizon Holdings (ASX:AZJ) is paying 10.5 cents 95 per cent franked
Credit Corp Group (ASX:CCP) is paying 38 cents fully franked
Carlton Investments (ASX:CIN) is paying 40 cents fully franked
Cleanaway Waste (ASX:CWY) is paying 2.45 cents 25 per cent franked
ECP Emerging Growth (ASX:ECP) is paying 2.1 cents fully franked
Evolution Mining (ASX:EVN) is paying 3 cents fully franked
Fortescue Metals Group (ASX:FMG) is paying 86 cents fully franked
HT&E (ASX:HT1) is paying 3.9 cents fully franked
Humm Group (ASX:HUM) is paying 1.7 cents fully franked
Latitude Group (ASX:LFS) is paying 7.85 cents fully franked
McPherson's (ASX:MCP) is paying 3 cents fully franked
McGrath (ASX:MEA) is paying 2.5 cents fully franked
Metrics Income (ASX:MOT) is paying 0.62 cents unfranked
Metrics Master (ASX:MXT) is paying 0.67 cents unfranked
Partners Group Global (ASX:PGG) is paying 0.6833 cents unfranked
Pengana Int Equ (ASX:PIA) is paying 1.35 cents fully franked
Steadfast Group (ASX:SDF) is paying 5.2 cents fully franked
Senex Energy (ASX:SXY) is paying 5 cents unfranked
Ventia Services Group (ASX:VNT) is paying 1.47 cents fully franked
Worley (ASX:WOR) is paying 25 cents unfranked

Dividend-pay

There are 19 companies set to pay eligible shareholders today

Abacus Property Group (ASX:ABP)
Carindale Property Trust (ASX:CDP)
Charter Hall Group (ASX:CHC)
Charter Hall Retail Reit (ASX:CQR)
Dexus Property Group (ASX:DXS)
Elanor Commercial Property Fund (ASX:ECF)
Elanor Investors Group (ASX:ENN)
Elanor Retail Property Fund (ASX:ERF)
Fat Prophets Global Property Fund (ASX:FPP)
GDI Property Group (ASX:GDI)
GPT Group (ASX:GPT)
Growthpoint Properties Australia (ASX:GOZ)
Janus Henderson Group (ASX:JHG)
Kelly Partners Group Holdings (ASX:KPG)
Mirvac Group (ASX:MGR)
Plato Income Maximiser (ASX:PL8)
Scentre Group (ASX:SCG)
Stockland (ASX:SGP)
Waypoint Reit (ASX:WPR)

Commodities

Iron ore has lost 2.6 per cent to US$133.45. Its futures point to a 1.1 per cent gain.

Gold lost US$38.70 or plunged over 2 per cent to US$1,888 an ounce. Silver is down $0.69 or 2.8 per cent to US$24.02 an ounce.

Oil has lost $1.22 or 1.3 per cent to US$91.59 a barrel.

Currencies

One Australian Dollar at 8:00 AM has fallen slightly from Friday, buying 71.68 US cents (Fri: 71.69 US cents), 53.81 Pence Sterling, 82.53 Yen and 64.37 Euro cents.

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