Crude prices surge on dim Russian energy sales, Dow rebounds, Treasury yield jumps: ASX to rise

Market Reports

by Melissa Darmawan

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Risk back on the table lifts Wall St higher, the 10-year treasury note’s biggest one-day move since 2020. Commodity prices buoy European markets rally. Asian markets retreat, ASX continues higher on 4-day winning streak.

Good morning. A rate hike is imminent. I’m Melissa Darmawan for Finance News. This is your market outlook.

The Australian sharemarket is ready to rise after risk was put back on the table.

Rally-mode as investors eye imminent rate hike

A different mood today with US stocks in rally-mode after yesterday’s steep losses. The Dow erased its 600 points fall yesterday almost to the tee, with broad based gains on the S&P 500. Tech shares were also in favour even amid a climbing treasury yield. Fed Chair Jerome Powell testified before the House Financial Services Committee, confirming that the central bank is set to hike interest rates at its meeting this month. Despite the intensifying situation between Russia and Ukraine, investors bought the dip even as oil prices continue to surge.

Market participants have eased back its expectations for a 50 points rate hike to 25 basis points after inflation reset fresh record highs. However, Powell said that the central bank is prepared to move more aggressively if inflation does not abate. He said that the aim is to stop inflation continuing to climb, but not attempt to get it back before pre-pandemic levels.

The Fed is dealing with several compounding issues such as rising inflation, coupled with economic risks presented by the eastern Europe crisis, which could set inflation to soar even higher. Powell himself is walking a tightrope, awaiting the Senate’s confirmation for a second term.

Since a 25 basis points hike is set to be on the horizon, it shows that Powell is playing the caution card. He wants to see how things unfold and even more so, with the geo-political tensions, presenting additional economic uncertainty.

Monetary vs fiscal authorities

Though what looms on trader’s minds is how the Fed can raise rates to combat inflation without choking growth and avoid a recession. Investors mull on how long term growth and price stability will have a role, as in the short term, the interest rate hike will cut demand from the supply-demand equation. So yes, the Fed has the aim to cut growth, however what was discussed in his testimony, is that the monetary authorities can only do so much, as fiscal authorities also play a role. Fiscal support takes time, as Government spending on infrastructure takes years to build amid the supply chain disruptions.

Energy market

Turning our attention to the energy market, yesterday the IEA, International Energy Agency, is set to release 60 million barrels of oil from the global supply. Energy traders digested the announcement and realised that there’s a strong likelihood that Russian energy exports will be cut from the market. So how did they react? They decided to start pricing that in and we will go through the price soon.

To put this into perspective, Russia exports around 5 million barrels a day, while the IEA is going to release 60 million barrels. So if you do the maths, it’s around 12 days of Russian crude exports. So is that enough to replenish the situation, given the tight market right now? Demand is very high, supplies are really tight, so from this, without taking into account other supplies, it’s not enough.

Self-sanctioning from Russia exposure

Interestingly, we have seen companies recently self-sanction their Russia exposure without an order from the government. Given that the market is doing this, if the Biden administration does sanction Russian energy, it will be interesting to see if it will make a difference as companies are already starting to do this. For example, oil giant BP this week announced their plans which saw their share price fall. Citibank as well. Despite this, the headline risk is high and crude prices rally.

Aussie economy bounces back

Yesterday, in local economic news, Australian GDP, gross domestic product grew by 3.4 per cent in the December quarter, its strongest gain since 1976, following a contraction of 1.9 per cent in the September quarter due to a delta-lockdown. The figures came after the Reserve Bank reviewed more recent data points, given that we are now in March, a few months have past. We’re also in a different period, floods and war have taken over Covid-19 news. In the December quarter, Aussies spent money on services after being cooped up at home, spending their savings. The household saving to income ratio fell from 19.8 per cent to 13.6 per cent in the period.

It’s been a volatile year, a volatile month, a volatile few days. Rising oil prices do pose a concern for central banks amid hot inflation. Now that we are in March, the rout to rally is still underpinned by a stack of uncertainty as investors balance between central bank headlines, economic data, company news, and geopolitical concerns. It’s never been such a complex environment.

Figures around the globe

At the closing bell, Wall St closed higher. The Dow Jones gained 1.8 per cent to 33,891, the S&P 500 added 1.9 per cent to 4,387 while the Nasdaq closed 1.6 per cent higher at 13,752.

Across the S&P 500 sectors, as mentioned, a broad-based gain. Financials, materials, and energy were the best performers, up over 2.2 per cent. Communication services added the least, up 0.7 per cent.

The yield on the 10-year treasury note rose 20 basis points to 1.91 per cent as prices fell, as stocks were in favour. Gold dipped on a weaker greenback.

Across the Atlantic, European markets closed higher. Paris added 1.6 per cent, Frankfurt gained 0.7 per cent and London’s FTSE rose 1.4 per cent as oil and mining giants gained on rising commodity prices, oil majors, BP jumped 4.8 per cent and Shell advanced by almost 5 per cent while miner Rio Tinto gained 3.5 per cent.

Asian markets closed lower. Tokyo’s Nikkei fell 1.7 per cent, Hong Kong’s Hang Seng lost 1.8 per cent due to weakness in technology shares, while China’s Shanghai Composite dipped 0.1 per cent.

Yesterday, the Australian sharemarket closed 0.3 per cent higher at 7,117, continuing its winning streak for its fourth straight day. Energy, materials, and utilities led the gains, while financials, property and consumer discretionary led the losses. The rest closed lower.

The best-performing stock in the ASX 200 was PolyNovo (ASX:PNV), closing 7.3 per cent higher at $1.18. It was followed by shares in Santos (ASX:STO) and Woodside Petroleum (ASX:WPL). The worst performer was PointsBet Holdings (ASX:PBH), switching seats the day prior as the winner, closing 11.8 per cent lower at $3.68. It was followed by shares in Janus Henderson Group (ASX:JHG) and Magellan Financial Group (ASX:MFG).

SPI futures

Taking all of this into the equation, the SPI futures are pointing to an almost 1 per cent gain.

Local economic news

The international trade balance for January is set to be released today from the Australian Bureau of Statistics.

Economists expect the surplus widened to $9.3 billion in the month, from $8.4 billion in December. Stronger exports and imports, alongside higher prices and volumes for iron ore, coal is set to drive these results.

Also building approvals for January are also due by the Bureau. Economists anticipate building approvals to fall 3 per cent in the month, following a 8.2 per cent jump in December.

Ex-dividend

There are over 30 companies trading ex-dividend today.

Auswide Bank (ASX:ABA) is paying 21 cents fully franked
Ambertech (ASX:AMO) is paying 1.5 cents fully franked
ASX (ASX:ASX) is paying 116.4 cents fully franked
Beacon Lighting Group (ASX:BLX) is paying 4.3 cents fully franked
Capral (ASX:CAA) is paying 50 cents fully franked
Capitol Health (ASX:CAJ) is paying 0.5 cents fully franked
Coles Group (ASX:COL) is paying 33 cents fully franked
Dalrymple Bay (ASX:DBI) is paying 4.5 cents unfranked
Ebos Group (ASX:EBO) is paying 38.7735 95.77
Engenco (ASX:EGN) is paying 0.5 cents fully franked
Finbar Group (ASX:FRI) is paying 2 cents fully franked
Fleetwood (ASX:FWD) is paying 2 cents fully franked
Gr Engineering (ASX:GNG) is paying 9 cents fully franked
HiTech Group Aust (ASX:HIT) is paying 5 cents fully franked
Healthia (ASX:HLA) is paying 2 cents fully franked
Ironbark Capital (ASX:IBC) is paying 1 cents fully franked
IDP Education (ASX:IEL) is paying 13.5 cents 9 per cent franked
Infomedia (ASX:IFM) is paying 2.6 cents 70 per cent franked
IGO (ASX:IGO) is paying 5 cents fully franked
InvoCare (ASX:IVC) is paying 11.5 cents fully franked
Jumbo Interactive (ASX:JIN) is paying 22 cents fully franked
Kina Securities (ASX:KSL) is paying 5.95 cents unfranked
Monadelphous Group (ASX:MND) is paying 24 cents fully franked
Nine Entertainment (ASX:NEC) is paying 7 cents fully franked
NIB Holdings (ASX:NHF) is paying 11 cents fully franked
Pacific Grp (ASX:PAC) is paying 15 cents fully franked
Probiotec (ASX:PBP) is paying 2 cents fully franked
Pro Medicus (ASX:PME) is paying 10 cents fully franked
Pinnacle Investment (ASX:PNI) is paying 17.5 cents fully franked
Schaffer Corp (ASX:SFC) is paying 45 cents fully franked
Shape Aust Corp (ASX:SHA) is paying 4 cents fully franked
Silk Logistics (ASX:SLH) is paying 2.19 cents fully franked
Woolworths Group (ASX:WOW) is paying 39 cents fully franked

Dividend-pay

There is one company set to pay eligible shareholders today, BKI Investment Co (ASX:BKI).

Commodities

Iron ore has gained 0.4 per cent to US$145. Its futures point to a 2.4 per cent gain.

Gold has lost $16.20 or 0.8 per cent to US$1,928 an ounce. Silver is down $0.16 or 0.6 per cent to US$25.38 an ounce.

Oil has added $7.90 or 7.6 per cent to US$111.31 a barrel.

Currencies

One Australian Dollar at 8:20 AM has strengthened from yesterday, buying 72.96 US cents (Wed: 72.49 US cents), 54.43 Pence Sterling, 84.30 Yen and 65.59 Euro cents.

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