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Global Market Report - 22 February

Lewis Jackson  |  22 Feb 2022Text size  Decrease  Increase  |  
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Australia

Australian shares are poised to drop as traders in Europe and the US dumped equities following an escalation in the conflict between Russia and the West over Ukraine; Gold and oil rise.

ASX futures were down 72 points or 1% at 7087 near 8.00 am AEST, suggesting a negative start to trading.

Futures for the S&P 500 declined almost 1.3% Monday, while contracts for the tech-focused Nasdaq 100 fell 1.9% and futures for the Dow Jones Industrial Average shed 0.9%. US stock markets were closed Monday for Presidents Day.

Russia formally recognised two separatist regions in eastern Ukraine, Donetsk and Luhansk, overnight in a ceremony at the Kremlin. Shortly after he ordered troops into both regions on a "peacekeeping mission". Leaders in the US, UK and Europe have condemned the move.

Separately the Russian army claims it destroyed two Ukrainian vehicles that strayed into its territory. 

The pan-continental Stoxx Europe 600 fell 1.3%. The MOEX, Russia's benchmark stock index, tumbled 10.5%—its biggest daily percentage decline since March 2014 during Russia's invasion of Crimea.

On Monday, the S&P/ASX 200 closed 0.2% higher at 7233.6. The benchmark dropped 0.9% in early trade amid concern over tension in Ukraine but sentiment shifted on the potential meeting.

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The utilities sector was the biggest gainer, adding 3.7% as AGL shares jumped 11% on takeover interest.

The heavyweight financial sector rose by 0.6% and consumer staples added 2.3%, with Endeavour surging 10% after the drinks and hospitality group reported a better-than-expected 1H profit.

Tech billionaire Mike Cannon-Brookes and Canadian Asset Manager Brookfield are willing to take their $5 billion bid for AGL Energy hostile, according to an interview with the Financial Times published yesterday. AGL’s board knocked back the $7.50 per share bid early Monday, claiming it materially undervalued the company.

In Asia, China's Shanghai Composite and South Korea's Kospi closed little changed. Hong Kong's Hang Seng declined almost 0.7% and Japan's Nikkei 225 retreated 0.8%.

Turning to commodities, gold futures rose 0.3% to $US1906.20 amid a move to assets perceived as safe; Brent crude jumped 3.4% to $US96.76 a barrel; Iron ore declined 4.2% to US$140.

In bond markets, the yield on the Australian 10-year bond slipped to 2.21%. US bond markets were closed for the President’s Day holiday. Yields fall when prices rise.

The Australian dollar was buying 71.91 US cents near 8.00am AEST, up from the previous close of 71.74. The WSJ Dollar Index, which measures the US dollar against 16 other currencies, edged down to 89.68.

Asia

Turning to Asian markets, Chinese stocks ended the session mixed, slightly weakening from a broad upturn last week. The benchmark Shanghai Composite Index edged down by 0.15 point to settle at 3409.61, snapping a multiday rally. The Shenzhen Composite Index rose 0.6%, while the ChiNext Price Index was down by 0.8%. Tech stocks were among the better-performing sectors, as IT-services providers, telecom-equipment makers and telecom carriers led the upturn. But infrastructure companies such as building materials suppliers and construction contractors fell.

In Hong Kong, stocks fell as developers declined after official data showed new-home prices dropped for a fifth straight month in January. The Hang Seng Index shed 0.6% and the Hang Seng Tech Index retreated 2.8%.Henderson Land, Wharf Real Estate Investment and New World Development shed 2.2%, 1.8% and 1.5%, respectively. Technology stocks also took a beating amid regulatory concerns after e-commerce sites operated by Tencent and Alibaba Group, down 5.2% and 3.8%, respectively, were included on the US government's latest "notorious markets" list of entities that allegedly sell or facilitate the sale of counterfeit goods.

Japanese stocks ended lower, dragged by electronics shares, as geopolitical uncertainty over Ukraine continued to weigh. Tokyo Electron fell 2.9% and Keyence dropped 2.7%. Sharp Corp. lost 10% following its plan to fully acquire an unprofitable display affiliate. The Nikkei Stock Average trimmed early declines to end 0.8% lower after President Biden agreed to meet his Russian counterpart, provided that Russia pulls back from a potential attack of Ukraine.

Europe

European stocks fell into the red as concerns about rising political tensions in eastern Europe continue to weigh on market sentiment. The pan-European Stoxx 600 dropped 1.3%.

The MOEX, Russia's benchmark stock index, tumbled 10.5%—its biggest daily percentage decline since March 2014 during Russia's invasion of Crimea.

Ukraine's hryvnia and Russia's ruble both extended declines against the US dollar after Russian President Vladimir Putin said Monday evening he would recognize the independence of two Russian-led breakaway regions of Ukraine. The ruble fell 3.4% against the US dollar, while the hryvnia declined 1%.

"European markets continue to fall as the prospect of conflict in eastern Europe rises," IG says.

"Investors are still determined to keep selling, it seems, weighed down by concerns about the impact of a Russia-Ukraine conflict. It now looks very likely and as a result, markets remain firmly under pressure."

In London, the FTSE 100 fell 0.4% on Monday.

North America

Russian stocks, the ruble and European shares tumbled while oil prices rose as investors grew nervous at signs of escalation between Moscow and the West.

US stock markets were closed Monday for Presidents Day, having posted losses last week as the threat of an invasion of Ukraine and the uncertain path of monetary policy weighed on sentiment. Futures for the S&P 500 declined almost 1.3% Monday, while contracts for the tech-focused Nasdaq 100 fell 1.9% and futures for the Dow Jones Industrial Average shed 0.9%.

On Monday, Russia said it had destroyed two Ukrainian armoured vehicles inside its territory but offered no evidence of the alleged incursion. Ukrainian and Western leaders warned that Moscow was seeking pretexts to attack. Russia's deployment of more than 100,000 troops along its border with Ukraine has led to the biggest standoff between Moscow and the West in years, with the US warning of an imminent Russian invasion of its neighbour.

Brent crude, the international oil benchmark, rose 3.4% to $96.69 a barrel. Gold futures, which have gained recently as investors sought safe assets, rose 0.3% to $1906.2.

Investors worry that a war between Ukraine and Russia could prolong elevated inflation in developed economies by disrupting supplies of important commodities. Russia is among the world's largest suppliers of oil, as well as the biggest exporter of wheat, and a major metals producer. Ukraine is a major world supplier of corn and wheat.

"Markets find it fiendishly difficult to price in geopolitical risk," said Edward Park, chief investment officer at UK investment firm Brooks Macdonald. "Over the weekend, we've had a worsening and then an improvement of sentiment. It does seem that we'll have another week of uncertainty."

Investors continue to try to assess by how much and how quickly the Federal Reserve will raise interest rates to tame inflation. Some Fed officials have pushed back against expectations that they will begin raising interest rates in March with a larger increase in the benchmark rate, while others have left the door open.

is a reporter and data journalist with Morningstar. Tweet him @lewjackk or get in touch via email

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