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The ASX was set to open higher after Wall Street rose on signs Russia was backing away from conflict with Ukraine.
ASX futures rallied 71 points or 1 per cent as the main US indices put on 1.2-2.5 per cent.
Oil and gold fell as some of the “risk premium” came out of the market. Iron ore slumped as China ramped up a price crackdown. Copper and nickel rose. The dollar climbed to 71.5 US cents.
Wall Street
US stocks surged after the Russian Defence Ministry said some of its troops were returning to barracks following the completion of training exercises near the Ukraine border. Russian President Vladimir Putin said he was ready for talks on security measures with NATO. The developments overshadowed a spike in US producer prices.
The S&P 500 bounced 69 points or 1.58 per cent to its first gain in four sessions. The Dow Jones Industrial Average put on 423 points or 1.22 per cent. The Nasdaq Composite added 349 points or 2.53 per cent.
“De-escalating tensions between Russia and Ukraine are helping overall sentiment today,” Ryan Detrick of LPL Financial said.
Fears of an imminent Russian invasion abated after authorities announced a partial pullback of troops. President Putin indicated he was willing to hold further talks with the West following discussions with German Chancellor Olaf Scholz.
US President Joe Biden gave a guarded response, indicating the US had yet to verify Russian troop withdrawals. He urged Russia to choose diplomacy.
Oil fell more than 3 per cent. Gold, the US dollar and other defensive havens retreated. Volatility measures receded. The Chicago Board Options Exchange’s market volatility index, the VIX, fell 8.7 per cent from a three-week high.
Travel stocks rebounded from several days of weakness. American Airlines jumped 8.09 per cent, United Airlines 7.56 per cent and cruise line Carnival 6.65 per cent.
Energy companies and gold miners declined. ConocoPhillips shed 2.05 per cent, Exxon Mobil 1.25 per cent, Barrick Gold 1.94 per cent and Newmont 1.66 per cent.
Growth stocks shrugged off an unexpectedly large increase in wholesale prices. The producer price index increased 1 per cent last month, twice as much as economists predicted. Prices were 9.7 per cent higher than this time last year.
“Strong gains across the board for businesses reinforce the inflationary concerns that the Federal Reserve is set to battle this year with monetary policy, and which the economy in general has recently begun expressing caution and concern over,” PNC economist Kurt Rankin said.
The yield on ten-year US treasuries popped almost six basis points, back above 2 per cent. Yields have risen strongly this year in anticipation of a series of increases in official rates as the Fed tries to dampen pricing pressures in the economy.
Australian outlook
A bright start coming up following a de-escalation of tensions on the Russia-Ukraine border. The sigh of relief on Wall Street was so loud it temporarily drowned out the tsunami of inflation crashing over markets.
The S&P/ASX 200 should open well, continuing this month’s recovery. The domestic market has outperformed over the last few sessions, supported by strength in commodities and mostly positive earnings updates.
“In the grand scheme of things, yesterday’s -0.5% loss on the ASX 200 was relatively minor against the backdrop off selling pressures elsewhere,” City Index senior market analyst Matt Simpson said. “It has outperformed Wall Street since the January low, hasn’t seen a single daily loss of over -1% during its rally and the only sector to post a loss over that period is the Health Care sector.
“Now that some of Putin’s troops are heading back to the barracks and Wall Street trades higher, it leaves potential for some green today. Although we also need to factor in the potential further losses on Iron Ore, as traders scrambled for the exit on fears of another China crackdown.”
How the day plays out will be affected by profit results from two heavyweights: CSL and Fortescue Metals. CSL traded at a two-and-a-half-year low yesterday. That suggested caution ahead of today’s update, but left plenty of upside if the biotech springs a surprise. Fortescue also fell yesterday, but that was more likely due to a heavy sell-off in iron ore (more below).
Australia’s resources-heavy market will face headwinds today from declines in ore, crude and gold. The US energy sector fell 1.39 per cent overnight.
Wall Street’s best performers were tech +2.73 per cent and consumer discretionary (cruise lines, casinos, hotels) +2.08 per cent.
Also due to report earnings this morning were Santos, Vicinity Centres, Treasury Wine Estates, Nearmap, Emeco, Evolution Mining, Breville Group and Redbubble.
Chinese inflation figures are due at 12.30 pm AEDT.
The dollar drew a bid from the improved risk appetite, rising 0.3 per cent to 71.53 US cents.
Commodities
Oil pulled back from a seven-year high amid diminished fears of a supply disruption if Russia invaded Ukraine. Brent crude settled US$3.20 or 3.3 per cent lower at US$93.28 a barrel.
“The key question for this market is how much Ukrainian war premium is in this market,” Phil Flynn, senior market analyst at The Price Futures Group, said. “If Russia does pull back, can oil fall $10…or $20 in the event that the Russian-Ukraine situation is diffused?”
Gold retreated as the release of Russia-Ukraine tensions undercut demand for safe havens. Metal for April delivery settled US$18.30 or 1 per cent lower at US$1,851.10 an ounce. The NYSE Arca Gold Bugs Index dropped 1.5 per cent.
Iron ore skidded after Chinese authorities summoned producers to a “reminding and warning” symposium. Tomorrow’s meeting is part of a crackdown on price gouging and disinformation launched after ore prices bounced more than 50 per cent from last year’s lows. Ore prices tumbled 8.7 per cent to US$136 a tonne.
“The government’s rhetoric on cracking down on iron ore prices is expected to drive trading for the near term as the market awaits more specific measures,” Wei Ying, analyst with China Industrial Futures, told Reuters.
BHP‘s US-traded depositary receipts declined 1.07 per cent after its UK listing shed 1.55 per cent. Rio Tinto lost 1.57 per cent in the US and 1.33 per cent in the UK.
Copper and nickel bounced with other risk assets. Benchmark copper on the London Metal Exchange advanced 0.54 per cent to US$9,974 a tonne. Nickel gained 0.62 per cent, lead 0.92 per cent and zinc 0.64 per cent. Aluminium lost 0.77 per cent and tin 0.03 per cent.
