Oil jumps as Russian incursion in Ukraine deepens, Wall St mixed, RBA to meet: ASX to lift


Wall St closed mixed amid Russian banks removed from the SWIFT payments system while the US Federal Reserve banned transactions with Russia's central bank, while the UK planned to freeze assets of Russian banks. 

Good morning. The RBA meets. I’m Melissa Darmawan for Finance News. This is your market outlook.

The Australian sharemarket is set to lift, continuing from its rally yesterday.

Nasdaq recovers on volatile session

Nasdaq staged a comeback to positive territory in the final 30 minutes of trade, with the Dow at one point down 500 points though didn’t quite make it like the Nasdaq, while the S&P 500 closed just under 12 points lower.

Investors took risk off the table and rotated into safe haven assets like bonds, gold and into defensive stocks as investors paid close attention to the developments on Russia's invasion of Ukraine, including more sanctions from the US and its allies. A cloud of uncertainty continues to plague after unsuccessful talks in Belarus between officials from Russia and Ukraine. This comes after we saw stocks eke out a gain last week after back-to-back weekly losses.

A volatile market amid a war playing out in eastern Europe as well as central bank rate rises on the horizon. The question is how many rate hikes and by how much? Will it come in the wake of the continuing conflict?

Well, the Russian fallout intensified, setting off a wave of international backlash. The Biden administration expanded sanctions against Russia's central bank, blocking Americans from conducting business with it. The US also froze the bank's assets within the country, so we might see western allies make similar moves over the coming days.

Russian banks removal from SWIFT

Meanwhile, many Russian banks are being removed from the SWIFT global payment system. What that means is that the system does not move the money, but it does move the data about the money which is also as important. There are concerns that US companies do not want to remove Russia fully from SWIFT as it could have damaging effects against the greenback.

We saw cryptocurrencies breakout today amid this as an alternative means, however cash still plays a role when making these transactions. The move does support the argument that blockchain solutions are set to compete with the SWIFT network, however Washington is looking into making it harder for Russians to use crypto to get their money out of Russia.

Oil prices and other major commodities such as wheat jumped on sanctions, though the White House sanctions have held back targeting it for now.

Contagion sell-off on bank’s exposure to Russia

Citigroup disclosed its own exposure to Russian assets which saw the share price tumble over 4 per cent. The bank revealed its total exposure to Russian assets of US$5.4 billion at the end of 2021, so around 0.3 per cent of its assets which is a small exposure. There was some contagion spilling over to other banks with the likes of JP Morgan and Goldman Sachs down up to 4 per cent also amid concerns on how it could dent margins, especially around loans.

Cyberattacks prompt Toyota’s factory closures in Japan

Toyota is set to suspend its factory operations in Japan after a suspected cyber attack. The cyber attack is not directly against Toyota but against suppliers of plastic parts and electronic components. It's unknown who the attacker was and its motives, but it does come after Japan joined Western allies and condemned Russia. The Japanese government is investigating whether Russia was involved.

Moscow exchange closed, BP tumbles

Meanwhile, Oil major BP, tumbling 4 per cent despite oil prices surging, after it announced an exit from its 20 per cent stake in Russian oil giant Rosneft, which dived over 42 per cent. Peers Lukoil crashed over 62 per cent while and Gazprom cratered over 52 per cent. Sberbank of Russia saw a plunge of over 47 per cent amid the UK announcing a freeze on assets of Russian banks.

Moscow's stock exchange remained closed while the German exchange halted trading in several Russian stocks. German Chancellor Olaf Scholz said the country would increase its defence spending to more than 2 per cent of GDP. This launched defence companies Rheinmetall skyrocketing over 26 per cent, Leonardo almost 16 per cent and BAE Systems close over 10 per cent higher.

ASX Monday review

Looking at the local bourse, the materials sector drilled out in front as the best performing sector on a rich volume day, while technology was the worst. Turnover was around 60 per cent above the rolling three-month daily average of $12.7 billion as per Ord Minnett.

A standout was the unusually active trade of almost $1 billion in iron ore and lithium miner Mineral Resources (ASX:MIN) while BHP Group (ASX:BHP) jumped 4.4 per cent to $46.66 while Rio Tinto (ASX:RIO) rose 3.2 per cent to $118.17.

Fortescue Metals (ASX:FMG) weighed as they traded ex-dividend, down 2.4 per cent to $18.15. The performance was quite strong and could have been stronger, if Fortescue wasn’t trading without its dividend rights.

In terms of best and worst performers, Blackmores (ASX:BKL) closed 9.8 per cent higher at $82.65 as the health company marches back from its losses, as investors focus on its upcoming dividend. It was followed by shares in Clinuvel Pharmaceuticals (ASX:CUV) and Lynas Rare Earths (ASX:LYC).

The worst performer was Life360 (ASX:360) continuing to tumble from its 21 per cent weekly tumble after the US software provider posted steep 2021 losses, closing 8.9 per cent lower at $5.20. It was followed by shares in Tyro Payments (ASX:TYR) and Telix Pharmaceutical (ASX:TLX).

Local economists expect Russia's invasion of the Ukraine is set to have minimal impact on the Australian economy. While a surge in energy prices amid this situation could boost export revenues, rising oil prices means a price hike at the pump.

Figures around the globe

At the closing bell, the Dow Jones lost 0.5 per cent to 33,893, the S&P 500 fell 0.3 per cent to 4,373 while the Nasdaq gained 0.4 per cent to 13,751.

Across the S&P 500 sectors, energy by far was the best performer up 2.6 per cent with marginal gains across industrials, consumer discretionary, and utilities. Real estate was the worst performer, down 1.8 per cent followed by financials, and consumer staples.

The yield on the 10-year treasury note fell 14 points to near 1.83 per cent, gold rose on a weaker greenback.

Across the Atlantic, European markets closed lower. Paris lost 1.4 per cent, Frankfurt fell 0.7 per cent and London’s FTSE dipped 0.4 per cent.

On the London Stock Exchange, Rio gained 2.2 per cent, BP dropped almost 4 per cent and Shell fell 1.4 per cent.

Asian markets closed mixed. Tokyo’s Nikkei added 0.2 per cent, Hong Kong’s Hang Seng fell 0.2 per cent while China’s Shanghai Composite added 0.3 per cent.

Yesterday, the Australian sharemarket closed 0.7 per cent higher at 7,049.

SPI futures

Taking all of this into the equation, the SPI futures are pointing to a 0.3 per cent gain.

Local economic news

The Reserve Bank of Australia is set to meet today under cloudy circumstances brought about by escalating tensions in eastern Europe. Economists expect no change in policy settings but talks are heating up over when the central bank will hike its cash rate.

Economists will be combing through the statement on any colour as to when the first hike will be. Also, on a general note, economists are not expecting developments in Ukraine to digress the RBA’s path for now amid Russia’s uncertain and unpredictable plans.

Today, ANZ and Roy Morgan are set to release their consumer confidence figures following the attack, so it will be interesting to see how this will affect sentiment.

This comes after Australian Institute of Petroleum figures showed the national average for petrol prices hit a fresh record high in the past week, rising a further 1.5 cents to 180.6 cents per litre. 

Ex-dividend

There are a number of companies trading ex-dividend today.

Appen (ASX:APX) is paying 5.5 cents 50 per cent franked
AUB Group (ASX:AUB) is paying 17 cents fully franked
Bega Cheese (ASX:BGA) is paying 5.5 cents fully franked
Domino Pizza Enterpr (ASX:DMP) is paying 88.4 cents 70 per cent franked
Eumundi Group (ASX:EBG) is paying 3.5 cents unfranked
Endeavour (ASX:EDV) is paying 12.5 cents fully franked
Eureka Group (ASX:EGH) is paying 0.63 cents unfranked
Gale Pacific (ASX:GAP) is paying 1 cent 50 per cent franked
Heartland Group (ASX:HGH) is paying 5.1225 cents unfranked
Homeco (ASX:HMC) is paying 6 cents fully franked
Integral Diagnostics (ASX:IDX) is paying 4 cents fully franked
NB Global Corporate Income Trust (ASX:NBI) is paying 0.8049 cents unfranked
Orora (ASX:ORA) is paying 8 cents unfranked
Origin Energy (ASX:ORG) is paying 12.5 cents unfranked
Sunland Group (ASX:SDG) is paying 12 cents fully franked
Wotso Property (ASX:WOT) is paying 3 cents unfranked

Dividend-pay

There are three companies set to pay eligible shareholders today.

Champion Iron (ASX:CIA)
Dicker Data (ASX:DDR)
National Storage REIT (ASX:NSR)

Commodities

Iron ore has gained 4.2 per cent to US$139.10 as Russia-Ukraine conflict strikes supply concerns. Its futures point to a 1.4 per cent gain.

Gold has gained $23.50 or 1.3 per cent to US$1911 an ounce. Silver is up $0.50 or 2.1 per cent to US$24.52 an ounce.

Oil has added $4.17 or 4.6 per cent to US$95.76 a barrel.

Currencies

One Australian Dollar at 8:25 AM has strengthened from yesterday, buying 72.60 US cents (Mon: 71.68 US cents), 54.12 Pence Sterling, 83.45 Yen and 64.75 Euro cents.
 

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