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The Australian trading week looked set for a weak start following broad losses on Wall Street as Russia and Ukraine edged closer to war.
ASX futures pointed to an opening loss of 51 points or 0.7 per cent.
Moscow announced overnight it would extend military drills near Ukraine’s northern border. US Secretary of State Antony Blinken said Ukraine appeared “on the brink of an invasion”.
Back home, the last big week of the corporate reporting season includes reports from Rio Tinto, Coles, Woolworths, Qantas, Nine Entertainment and Seven Group.
Wall Street
US stocks retreated as the threat of war encouraged investors to reduce exposure ahead of a long weekend. Wall Street is closed tonight for the Presidents Day holiday.
The S&P 500 declined 31 points or 0.72 per cent in choppy trade as trillions of dollars of options and futures contracts expired. The Dow Jones Industrial Average shed 233 points or 0.68 per cent. The Nasdaq Composite gave up 169 points or 1.23 per cent.
The declines sealed a second straight losing week overshadowed by the prospect of conflict in Ukraine. Market sentiment waxed and waned all week with hopes of avoiding a fullblown war. For the week, the Dow lost around 1.9 per cent, the S&P 500 1.6 per cent and the Nasdaq 1.8 per cent.
Moscow announced overnight 30,000 Russian troops would extend military exercises in Belarus that were originally scheduled to finish yesterday. Explosions were reported in parts of eastern Ukraine controlled by separatists. NATO said Russia’s decision to retain troops in Belarus was further evidence of Russian intent to invade.
“Everything we are seeing suggests that this is dead serious, that we are on the brink of an invasion,” US Secretary of State Blinken told CNN.
Growth stocks led Friday’s sell-off as investors prepared for higher rates this year. Microsoft shed 0.96 per cent, Apple 0.94 per cent, Tesla 2.21 per cent and Nvidia 3.53 per cent. Chipmaker Intel sagged 5.32 per cent following an “Underperform” rating from Bank of America.
Several Federal Reserve policymakers spoke in favour of raising benchmark rates from record-low levels next month. New York Fed president John Williams, an ally of Chair Jerome Powell, said it was time to move “the target range back to more normal levels”.
“This is a confused market, confused about Ukraine, confused about how aggressive the Fed is going to be, and pretty much ignoring very strong earnings results from the fourth quarter,” Tim Ghriskey, senior portfolio strategist at Ingalls & Snyder, told Reuters.
Australian outlook
The push and pull between strong corporate earnings and geopolitical tensions looks set to continue this week. The S&P/ASX 200 outperformed Wall Street last week, and will likely have to give a bit back before US trade resumes tomorrow night.
The Australian benchmark clung on for a weekly gain of four points or less than 0.1 per cent despite a loss of 74.5 points or 1.02 per cent on Friday. By contrast, the S&P 500 shed 1.6 per cent last week.
An unexpected takeover offer for energy giant AGL may soften the market mood. Canadian fund manager Brookfield and Atlassian billionaire Mike Cannon-Brookes have reportedly launched a bid for the company with the aim of closing its coal-fired power stations ahead of schedule.
Gold miners provided most of last week’s best returns – a sign of the increasingly defensive tone. Silver Lake Resources, Evolution Mining and Northern Star all gained at least 12 per cent. Sims and Magellan Financial Group were other standouts following strong trading updates.
Friday’s Wall Street action was also broadly defensive in nature. Consumer staples was the only sector to advance, inching up 0.11 per cent.
Financials and materials were next best with losses of 0.12 and 0.19 per cent, respectively. The high-growth tech sector fell 1.1 per cent. Industrials shed 0.91 per cent.
The last major week of the domestic earnings season gets underway with reports today from BlueScope Steel, OZ Minerals, Sonic Healthcare, Altium, Ampol, LendLease, Super Retail Group, Adairs, A2 Milk and NIB. Tomorrow brings updates from Coles, Cochlear, Seven Group, Costa Group, Estia Health, Alumina, Monadelphous and G8 Education.
Wednesday looks like this: Rio Tinto, Woolworths, Stockland, WiseTech, St Barbara, Domino’s Pizza, Worley, Healius. Thursday: Qantas, Brambles, Nine Entertainment, Appen, Ramsay Health Care, Flight Centre, Iluka , Southern Cross Media, Perpetual, Insignia Financial, Blackmores, Qube, Coventry Group, Link Administration. Friday: Mayne Pharma, Medibank, Adbri, Ardent Leisure, Genworth and BWX. (Source for all listings: CommSec.)
The domestic economic calendar is light on market-moving news. Potential highlights include preliminary monthly manufacturing and services measures (today); weekly consumer confidence (Tuesday); quarterly wage costs and construction work (Wednesday); and business investment (Thursday).
IPOs: the pipeline for new listings has completely dried up. This year’s explosion in volatility has made companies gun-shy. Essentially, no one wants to put to sea in stormy waters. This year stands in stark contrast to last year, when there were 240 new listings, the most since the peak of the mining boom.
Tonight’s US market holiday will temporarily slow the global money-go-round. Trading volumes in the Asia Pacific will be lighter than normal. There is little of note on the US economic calendar this week until Thursday night’s preliminary GDP report and Friday’s consumer price index.
The dollar started the week with an up-tick of 0.03 per cent to 71.66 US cents.
Commodities
Nickel hit a ten-year high amid the threat of sanctions against Russia, a major producer. Benchmark nickel on the London Metal Exchange climbed 1.5 per cent to US$24,609 a tonne.
“The problem is a shortage of nickel on the LME,” a trader told Reuters.
Nickel inventories at LME warehouses have reportedly declined by 69 per cent since last April. The metal is in high demand for rechargeable batteries for electric vehicles, as well as stainless steel. Friday’s rally lifted prices to their highest since 2011.
Also on the LME, copper rose 0.3 per cent and tin 0.8 per cent. Lead was unchanged. Aluminium fell 0.5 per cent and zinc 0.8 per cent.
Gold took a breather at the end of its best week in nine months. Metal for April delivery settled US$2.20 or 0.1 per cent lower at US$1,899.80 an ounce after earlier touching US$1,905. The NYSE Arca Gold Bugs Index eased 0.83 per cent.
For the week, the yellow metal gained 3.1 per cent, its best return since last May. Prices settled at an eight-month high on Thursday.
Oil suffered its first weekly loss of the year following a mixed end to the week as the prospect of restored Iranian supply offset fears of disruptions if Russia invades Ukraine. Brent crude settled 57 US cents or 0.6 per cent ahead at US$93.54 a barrel. The rise pared its weekly loss to 1 per cent, its first since mid-December.
West Texas Intermediate sank 69 cents or 0.8 per cent to US$91.07. The US crude benchmark lost 2.2 per cent for the week.
Iron ore prices also finished mixed at the end of a challenging week. The most-traded contract on China’s Dalian exchange fell 1.4 per cent on Friday to its worst weekly loss in two years. Prices fell 19 per cent last week after Chinese regulators launched a crackdown.
The spot price for ore landed at Tianjin bounced US$2.85 or 2.2 per cent to US$133.50 a tonne, but still finished the week US$16.65 or 11.1 per cent lower.
BHP and Rio Tinto rallied in overseas trade. BHP‘s US-traded depositary receipts advanced 2.09 per cent. The miner’s UK listing gained 2.1 per cent. Rio Tinto improved 1.24 per cent in the US and 1.23 per cent in the UK.
