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Global Market Report - 25 February

Lewis Jackson  |  25 Feb 2022Text size  Decrease  Increase  |  
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Australia

Australian shares are set to rebound from yesterday’s losses after US shares closed higher in volatile trading as Russian troops and tanks poured into Ukraine on three fronts.

ASX futures were up 82 points or 1.2% at 7026 near 8.00 am AEST, suggesting a positive start to trading.

In a frenzied trading session, the S&P 500 closed 1.5% higher, rebounding from a loss of as much as 2.6% earlier in the day. The Dow Jones Industrial Average rose about 90 points, or 0.3%. The Nasdaq swung wildly to finish up 3.3% after having crashed more than 3% in early trading.

The Cboe Volatility Index, Wall Street’s “fear gauge”, rose to the highest level in over 15 months.

US indexes rose following a Thursday afternoon address by President Biden, who announced new sanctions on Russian elites and banks. Russian President Vladimir Putin's "aggression in Ukraine will end up costing Russia dearly, economically and strategically," said Mr. Biden.

Some investors are betting that the Federal Reserve won't act as aggressively to curb inflation during these heightened tensions, which will help justify the valuations of growth companies.

"That makes people more comfortable buying growth stocks," said Gary Black, manager of the Future Fund Active exchange-traded fund. Mr. Black owns Alphabet and Palo Alto Networks, which rose 2% and 12%, respectively.

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European markets closed in a sea of red. The pan-continental Stoxx Europe 600 fell 3.3% and London’s FTSE 100 dropped 3.8%. Russia’s MOEX benchmark tumbled by about a third.

Yesterday, the S&P/ASX 200 closed 3.0% lower at 6990.6 as Russian troops poured into Ukraine and sent global equities tumbling. Every sector finished lower as losses accelerated through the day to leave the benchmark with its largest one-day percentage loss since September 2020. About 80% of ASX 200 component stocks lost ground.

Tech companies bore the brunt as the sector shed 6.4%. Life360 and Appen both recorded their worst ever one-day losses, each dropping 29%.

Banks Commonwealth, Westpac, NAB and ANZ fell by between 2.05% and 3.4% as the heavyweight financial sector tumbled 2.8%.

The energy sector dropped 1.8% even as Brent Crude topped $100/bbl for the first time since 2014.

Hong Kong's Hang Seng Index dropped over 3%. Japan's Nikkei Stock Average closed at its lowest level since November 2020.

Turning to commodities, gold futures declined 0.4% to $US1901.90; Brent crude advanced 2% to $US99.1 easing from levels above US$100 reached earlier in trading; Iron ore lost 0.7% to US$139.50.

In bond markets a rush to safety overnight saw yields slump before they recovered losses as the US trading day progressed. The yield on the Australian 10-year bond fell to 2.15%. US 10-Year Treasury note yields declined to 1.96%. Yields fall when prices rise.

The Australian dollar was buying 71.66 US cents near 7.00am AEST, down from the previous close of 72.32. The WSJ Dollar Index, which measures the US dollar against 16 other currencies, rose to 90.38.

Asia

Turning to Asian markets, Chinese stocks ended the session sharply lower, following a broad selloff in Asian equities after Russian President Putin earlier in the day announced military actions in a region of Ukraine. The benchmark Shanghai Composite Index fell 1.7%, while the Shenzhen Composite Index lost 2.4%. The ChiNext Price Index also erased strong gains, ending 2.1% lower. While oil companies and related services providers rose sharply, the gains were more than offset by steep losses in most other sectors, especially consumer companies such as cinema operators and home-appliance maker.

In Hong Kong, shares slumped amid a broad selloff in regional equities after Russia launched military action in Ukraine. Most sectors except energy ended weaker, with tech stocks among the top laggards. Alibaba Group, which is due to release quarterly results later today, shed 6.7% to a new closing low. JD.com gave up 4.8% and Tencent Holdings was 3.9% lower. Hong Kong Exchanges lost 5.4%, following its full-year results. Chinese oil majors advanced, as crude prices topped $100 a barrel, with PetroChina gaining 3.4%, Cnooc rising 1.0% and gas supplier ENN Energy adding 2.9%. The Hang Seng Index declined 3.2%, its biggest one-day percentage drop since September 2021.

Japan's Nikkei Stock Average fell 1.8%, its lowest level since November 2020, after Russian President Putin announced a military operation in Ukraine. Losses on the Nikkei were broad-based, with SoftBank Group slipping 6.8%, AGC Inc. shedding 6.1% and Disco Corp.
Tokyo shares fell but not too severely after Russia attacked Ukraine because market participants still expect it to be a limited war and not spiral into a direct conflict between the US and Russian militaries, MUFG Bank strategist Takahiro Sekido says.

Europe

European stocks slumped in closing trade as Russia invaded Ukraine in the early hours of the morning, sending equity markets around the world sharply down. The pan-European Stoxx 600 fell 3.3%.

"The escalation of tensions arising from the Russian action has pulled the rug from markets, adding to an already brittle environment in the face of rising inflation and interest rate concerns," Interactive Investor says.

In London, the FTSE 100 dropped 3.8%. Russian miners Polymetal International PLC and Evraz PLC were the index's biggest fallers--both plunging more than 30%--however, Brent crude oil prices have risen to more than $100 for the first time since 2014, as investors fled to the relative safety of oil, gold and US dollar.

"While the EU and the US have said they will hit back with further sanctions, it is highly unlikely that this will change Putin's calculus, given that the nuclear option of shutting Russia out of energy markets and Swift isn't yet on the table," CMC Markets UK says.

North America

US markets whipsawed Thursday, jumping in response to the announcement of new sanctions against Russia after its missiles and airstrikes hit dozens of cities across Ukraine.

The Dow Jones Industrial Average rose about 90 points, or 0.3%. The S&P 500, which reached correction territory earlier in the week, rose 1.5%. The Nasdaq, which was earlier down more than 3%, climbed 3.3%. The Cboe Volatility Index rose to the highest level in over 15 months.

US indexes rose following a Thursday afternoon address by President Biden, who announced new sanctions on Russian elites and banks. Russian President Vladimir Putin's "aggression in Ukraine will end up costing Russia dearly, economically and strategically," said Mr. Biden.

The invasion has heightened the pressure on a global economy already reeling from snarled supply chains and some of the highest inflation in years, with Europe likely to bear the brunt of the economic impact.

Between high inflation, prospects of interest-rate increases and war in Europe, Fiona Cincotta, senior financial markets analyst at City Index, said: "It just seems like it's too much for investors to be able to swallow right now."

Gold and US Treasury bonds, which both typically rally in times of stress, rose earlier before losing some ground. The front month gold futures contract was recently up $11.10 per troy ounce, or 0.6%, to $1,920.30. The yield on the benchmark 10-year US Treasury was at 1.976%, in line with Wednesday's close.

The dollar strengthened, with the WSJ Dollar Index gaining 0.8%. Currencies considered to be havens, such as the Japanese yen, also appreciated, Bitcoin was up 4.1% over the past 24 hours to $39,061, according to CoinDesk.

Brent crude oil, the global benchmark, topped $100 a barrel for the first time since 2014, but the April contract eased slightly to $99.01.

Natural-gas futures in Europe surged 50% and benchmark prices for aluminium and nickel, two metals of which Russia is a major producer, rose to their highest levels in about a decade. Wheat and corn futures advanced to multiyear highs, since both Russia and Ukraine are major grain producers.

Ukraine's foreign-exchange market suspended its operations under martial law measures, according to a statement from its central bank. The country's stock exchange also said it was postponing activity.

"We haven't had any serious military conflict in Europe for a very long time, so there's no playbook for this," said Gregory Perdon, chief investment officer at Arbuthnot Latham.

Weekly US jobless claims came in at 232,000, a decline from the previous week and in line with analysts' expectations amid a tight labor market.

Energy stocks advanced, while bank stocks around the world were hit hard. Defense stocks rallied, with BAE Systems rising 6.6% while Northrop Grumman climbed 1.9%.

Some tech and growth stocks rose Thursday, as did some meme stocks. Some investors are betting that the Federal Reserve won't act as aggressively to curb inflation during these heightened tensions, which will help justify the valuations of growth companies.

"That makes people more comfortable buying growth stocks," said Gary Black, manager of the Future Fund Active exchange-traded fund. Mr. Black owns Alphabet and Palo Alto Networks, which rose 2% and 12%, respectively.

Beyond Meat, Etsy and cryptocurrency exchange Coinbase are scheduled to report earnings after markets close.

Investors are building up cash buffers due to the market stress, said Florian Ielpo, head of macro at Lombard Odier Investment Managers. The company's multiasset funds currently hold the most cash since the market crash in March 2020.

The Russian attack came as volatility in markets was already heightened due to looming changes in Federal Reserve monetary policy.

Markets are expecting a standard 0.25 percentage-point increase at the Fed's meeting next month, rather than a more aggressive 0.5 percentage-point increase. As of Thursday, market pricing showed the probability of a bigger rate increase fell to 17% from 34% the day before, according to CME Group data.

"We might move past the geopolitical impact, but the market is still going to be concerned about the Fed's intentions to move rates higher," said Lindsey Bell, Ally's chief markets and money strategist.

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

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