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The share market was set to unwind much of a three-day rally after a “flight to safety” resumed on financial markets as oil prices surged and Russia intensified its attack on Ukraine.
Pressure on lenders helped drive the Dow down almost 600 points. The S&P 500 and Nasdaq Composite lost more than 1.5 per cent.
ASX futures declined 51 points or 0.7 per cent. The S&P/ASX 200 had risen 106 points since last Thursday.
US crude prices soared more than 8 per cent. Gold, bonds, the US dollar, industrial metals and other havens rose strongly.
Wall Street
US stocks started a new month with heavy falls as surging energy prices fuelled inflation fears. The declines came as images showed a massive column of Russian military vehicles closing on the Ukrainian capital, Kyiv, while Kharkiv, the nation’s second-largest city, came under heavy attack.
The S&P 500 fell 68 points or 1.55 per cent. The Dow Jones Industrial Average shed 598 points or 1.76 per cent. The Nasdaq Composite lost 219 points or 1.59 per cent.
Havens were in, risk assets out as US oil prices broke US$100 a barrel for the first time since 2014. Wheat prices climbed 5.35 per cent to their highest since 2008. (Russia and Ukraine are among the world’s four largest wheat exporters.)
Bank stocks led the retreat as a rush to the security of bonds lowered yields. The financial sector shed 3.7 per cent. JPMorgan Chase sank 3.79 per cent to a 52-week low. Wells Fargo gave up 5.75 per cent and Bank of America 3.94 per cent.
“Clearly the Russia-Ukraine situation is the primary driver of the markets,” Randy Frederick, managing director of trading and derivatives at Charles Schwab, told MarketWatch. “Financials are getting pounded because the 10-year is down sharply today,” he added.
Treasury yields have tumbled as the Russian invasion cast doubt on the pace of rate increases this year. The odds on a 50-basis point increase in official rates this month fell to 1 per cent from 34 per cent last week.
West Texas Intermediate crude surged US$7.69 or 8 per cent to US$103.41. Brent crude climbed US$7.24 or 7.4 per cent to US$105.21 a barrel. Occidental Petroleum gained 6.95 per cent. Chevron added 3.97 per cent.
The rally came as the International Energy Agency announced member countries, including the US, will release 60 million barrels from their emergency reserves.
Meanwhile, Russian oil was offered for sale in Europe at a US$15 a barrel discount to Brent crude, according to the Wall Street Journal. An exchange-traded fund of Russian companies fell another 18 per cent in the US after losing 30 per cent on Tuesday.
European markets closed sharply lower. The pan-European Stoxx 600 index shed 2.37 per cent. Germany’s DAX lost 3.85 per cent and France’s CAC 3.94 per cent.
Australian outlook
This week’s tentative ASX recovery looks ambitious following overnight events. However, the S&P/ASX 200 has built a buffer between yesterday’s close and last week’s “Ukraine crisis low”, according to City Index senior market analyst Matt Simpson.
“We expect further selling pressure today,” Simpson said. “But the reality is that prices remain within Thursday’s volatile, war-triggered range – which means we’ll likely need a catalyst of some magnitude before we expect prices to break below 6959 or above 7208. Until which, choppy trading conditions can be expected and traders would be wise not to marry their positions.”
Inflation is back at the top of investor worries following surges in crude, wheat, iron ore, aluminium and other commodities. While Australian exporters should benefit, prices for the consumer will rise, dampening growth.
This year’s best ASX performer, energy, was the only US sector to advance overnight. Crude soared ahead of tonight’s meeting of the Organization of the Petroleum Exporting Countries and allies (OPEC+).
“ASX energy stocks were already the best performers year-to-date by yesterday’s close, and we see little reason for them to be knocked from their perch today irrespective of what happens at the OPEC meeting,” City Index’s Simpson said.
“The main question for traders is whether OPEC will stick to the agreed 400-bpd increase or raise output at a faster rate to take the heat out of oil’s Ukraine-crisis-fuelled rally.”
Financials led last night’s US sell-off, falling 3.7 per cent. Also notably weak were materials -2.31 per cent and technology -1.93 per cent.
Perceptions of the Australian dollar as a proxy for commodities helped limit losses as the greenback strengthened against most other currencies. The Aussie dipped 0.12 per cent to 72.49 US cents. The US Dollar Index climbed 0.67 per cent.
Commodities
Gold logged its highest finish in 13 months as a scramble to safety accelerated. Metal for April delivery settled US$43.10 or 2.3 per cent ahead at US$1,943.80 an ounce. The NYSE Arca Gold Bugs Index gained 4.28 per cent.
“Events in Ukraine, following the Russian invasion, continue to dominate the mind-set of investors, offering support to safe-haven assets and supporting gold well above the $1,900 mark,” Ricardo Evangelista, senior analyst at ActivTrades, wrote.
Iron ore pushed back towards last month’s highs. The spot price for ore landed in China rose US$5.35 or 3.8 per cent to US$144.45 a tonne.
The rally came as China announced long-term plans to “solve” its iron ore price problem. The China Iron and Steel Association announced a plan to increase Chinese-owned overseas production from 120 million tonnes to 220 million tonnes by 2025 and more than triple domestic production in the same timeframe.
BHP‘s US-traded depositary receipts firmed 1.04 per cent after its UK listing gained 1.25 per cent. Rio Tinto put on 1.85 per cent in the US and 2.21 per cent in the UK.
Industrial metals saw strong gains on the London Metal Exchange. Aluminium pushed back towards record levels, rising 2.79 per cent to US$3,462.37 a tonne. Prices hit an all-time high of US$3,525 on Monday.
Benchmark copper climbed 1.99 per cent to US$10,008 a tonne. Nickel jumped 4.64 per cent, lead 1.17 per cent, zinc 3.6 per cent and tin 1.72 per cent.
