Global Market Report - 01 March
Australian shares look poised to rise after a mixed session on Wall Street.
Australian shares look poised to rise after a mixed session on Wall Street as investors parsed new sanctions on Russia’s central bank and the first ceasefire talks between officials from Ukraine and Russia.
ASX futures were up 29 points or 0.4% at 7052 as of 8.00 am AEST on Tuesday, suggesting a positive start to trading.
The S&P 500 lost 0.24%, while the Dow Jones Industrial Average fell around 179 points, or 0.5%. The tech-heavy Nasdaq Composite Index ended the day with some strength, rising 0.4%.
Russia’s central bank doubled interest rates overnight to 20% from 9.5% in a bid to steady the rouble after it tumbled as much as 29% following a new wave of sanctions targeting the country’s reserves. Elsewhere, Shell joined BP in announcing it would exit Russia’s oil and gas industry.
Investors returned to safer assets amid the market turmoil, sending the yield on the 10-year Treasury note down to 1.824%, from 1.984% Friday as bond prices rose. Gold prices edged higher.
Locally, the S&P/ASX 200 closed 0.7% higher at 7049.1 on Monday, recovering from an early wobble to recover some of last week's hefty losses. The benchmark rose 0.6% at the open before immediately dropping into negative territory amid continued investor alarm at Russia's invasion of Ukraine.
Yet the rally built anew, reclaiming some of the 3.1% lost across last week amid strong gains by commodity stocks.
Gold miners benefited from the risk-off sentiment, while Rio Tinto, BHP and BlueScope put on between 3.2% and 6.25%. Ex-dividend Fortescue shed 2.4%.
Energy explorers Beach, Santos and Woodside added between 1.3% and 1.5%.
Insurers QBE, Suncorp and IAG shed between 2.5% and 4.0% amid flooding in eastern Australia.
In Asia, stock markets were mixed. China's Shanghai Composite rose 0.3%, the Hang Seng slipped 0.2% and Japan's Nikkei 225 added 0.2%.
Turning to commodities, gold futures jumped 1.3% to $US1911.80; Brent crude rose 3.1% to $US100.99; Iron ore added 4.2% to US$139.10.
A risk off mood returned to bond markets with the yield on the Australian 10-year bond down to 2.13%.
The Australian dollar was buying 72.60 US cents as of 8.00am AEST, down from the previous close of 72.29. The WSJ Dollar Index, which measures the US dollar against 16 other currencies, edged up to 90.03.
Turning to Asian markets, Chinese stocks finished higher, with gains among coal producers and miners. Government policies aimed at stabilizing growth in China may be a more critical factor for the domestic market while external volatility should have a relatively limited impact, China International Capital Corp. says. Yankuang Energy rose 3.2%, China Shenhua added 2.7%, while Zijin Mining was 2.5% higher and Aluminum Corp. of China advanced 2.4%. Among notable decliners, China Tourism Group Duty Free lost 3.6% and Seazen Holdings dropped 3.0%, tracking weaknesses in Hong Kong-listed Chinese property stocks. The Shanghai Composite Index gained 0.3%, the Shenzhen Composite Index climbed 0.3% and the ChiNext Price Index added 0.9%.
In Hong Kong, stocks closed lower amid declines from property-related companies, with the benchmark Hang Seng Index falling 0.2% to close at 22713.02. Bocom International analyst Philip Tse said persisting liquidity concerns are pushing the sector down, with investors concerned over the sector's maturing debts. Country Garden Holdings, Country Garden Services and Hang Lung Properties fell 2.9%, 2.5% and 2.2%, respectively. Other notable decliners were Sunac China, which dropped 16%, and Zhenro Properties with a 5.6% loss. Concerns over Russia's invasion of Ukraine are also weighing on sentiment and depressing Asian equities.
Japanese stocks ended higher, led by gains in shipping and metal stocks even amid continued uncertainty over the war in Ukraine. Major shipper Nippon Yusen gained 4.6% and Sumitomo Metal Mining rose 4.2%. Meanwhile, shares of several companies with notable business exposure in Russia have dropped. Mitsui & Co. fell 4.3% and Japan Tobacco lost 3.6%. The Nikkei Stock Average rose 0.2%. Investors are focusing on headlines from Ukraine.
European stocks fell, but pared some of their earlier losses, as markets recovered their poise after Russia's invasion of Ukraine. The pan-European Stoxx 600 lost 0.1%.
Despite the lack of any obvious progress in Russia-Ukraine ceasefire talks, the initial shock of conflict has worn off and the atmosphere is less febrile than it was last week, IG says.
"It looks like a major escalation in the conflict would be required to prompt a further leg down," IG analyst Chris Beauchamp says.
European banks declined, with the Euro Stoxx banking subindex down around 5.7%. BNP Paribas fell 7.5% and Société Générale dropped around 10%.
"With Swift, there will be problems processing payments. That creates credit risk, not only for European banks with affiliates in Russia but more broadly, those with clients in Russia," said Sebastien Galy, a macro strategist at Nordea Asset Management.
In London, the FTSE 100 shed 0.3% as the war in Ukraine continued to affect markets and Russian and Ukrainian officials began to discuss potentially calling a stop to hostilities.
UK banks were among the biggest fallers after Russia was hurt by the meting out of western sanctions over Ukraine. London-listed shares in HSBC closed down 4.4%, with Barclays down 3.2% and NatWest down 2.6%.
Defense stocks rallied after Germany's pledge to increase its defense spending to 2% of GDP, with Chemring up 13%, Qinetiq up 11% and BAE Systems up 10%.
US stocks and bond yields fell while Russian authorities scrambled to keep a grip on domestic markets, as investors rushed to adjust to geopolitical developments including new sanctions against Russia.
The S&P 500 was down 0.24%, while the Dow Jones Industrial Average fell around 179 points, or 0.5%. The tech-heavy Nasdaq Composite Index ended the day with some strength, rising 0.4%.
Investors turned to safer assets, sending the yield on the 10-year Treasury note down to 1.836%, from 1.984% Friday as bond prices rose. Gold prices edged higher.
Monday's trading continues a turbulent stretch for markets after Moscow's invasion. Stock futures slid more than 2% Sunday evening and kicked off the week with declines before clawing back some of the losses, only to fall once again.
The S&P 500 and Nasdaq are ending February with a second consecutive month of losses. As of early Monday, the indexes were on track for the biggest two-month percentage decline since March 2020.
For much of the month, investors were preoccupied with high inflation and the Federal Reserve's coming interest rate hikes. This sent Treasury yields above 2% for the first time since mid-2019 and triggered a rush to bearish bets on stocks. Toward the end of February, geopolitical concerns quickly came to the forefront as Russia invaded Ukraine, sending markets around the globe spiraling.
Markets in Russia have been hammered since the invasion. Investors dumped Russian bonds and the ruble plunged to a record low, trading at 119 rubles to $1 in the European morning before recovering to around 97 rubles to $1. Market-data services showed limited price updates Monday, suggesting few transactions were taking place.
An exchange-traded fund tracking Russian companies, the VanEck Russia ETF, was down around 27%. Russia's RTS index lost around a third of its value in February, its worst monthly performance since October 2008.
Russia's central bank opted for an emergency interest-rate hike to combat a collapse in the ruble, more than doubling its benchmark rate to 20%, hours after imposing other restrictions on markets. It also temporarily banned brokers from handling sales of securities by nonresidents and kept the Moscow Stock Exchange closed Monday. It will remain closed Tuesday.
"There is very little liquidity and consequently you get this gapping in the price and you're not getting any real reflection of where the ruble would be," said Jane Foley, head of foreign-exchange strategy at Rabobank.
Though the past week has been marked by big swings, US markets have remained relatively insulated from the turmoil spreading through Russian markets.
In recent sessions, major indexes staged a rally, highlighting the importance that many investors have placed on the Federal Reserve's moves in coming months. Investors have rapidly shifted bets on the situation in Europe and how it might affect plans by the central bank to raise interest rates, with some now forecasting a smaller rate increase in March. That has helped lift stocks at times after the invasion.
"It will give the Fed a little bit more leeway to be patient," said David Sadkin, a partner at Bel Air Investment Advisors.
Ukrainian and Russian officials held talks about a possible cease-fire on Monday in Belarus, but fighting continued in Ukraine. Russia was reinforcing its troops in Ukraine, while Ukraine was mobilizing new forces and employing new weaponry from the West.
Some analysts say geopolitical crises typically don't have prolonged impacts on US stocks and that they expected the recent volatility to pass. Stocks have typically declined around 6% to 8% after a geopolitical event before retracing those losses in another three weeks, Deutsche Bank strategists said in a note to clients.
And among S&P 500 companies, only 1% of revenues stem from Russia and Ukraine, according to FactSet.
"To date we have not decided that we're going to make any changes based on what is happening in Ukraine," said Mark Stoeckle, chief executive officer of Adams Funds.
Major indexes were volatile in trading throughout the session on the last day of the month, briefly edging into the green before collapsing again. Some investors have used the intraday volatility to step in and buy stocks.
"This generally doesn't impact our view of the US markets," said Mike Bailey, director of research at FBB Capital Partners, of the conflict. Mr. Bailey added that his firm had picked up shares of companies like Nvidia recently, which had been bruised this year.
Still, companies domestically and abroad faced mammoth swings. Defense stocks rallied, with US-based Northrop Grumman rising 5.4%, making it one of the best performers in the S&P 500.
London-listed shares of Russian companies plunged, with Sberbank, the country's largest lender, down 74%.
"There's an enormous amount of volatility and nervousness," said Fahad Kamal, chief investment officer at Kleinwort Hambros. "The risk of miscalculation or something getting out of hand has increased."
Oil prices rebounded, with most actively traded futures for Brent crude, the global oil benchmark, rising 4.6% to $98.46 a barrel. Brent for delivery in April recently climbed to $100.45. Brent prices last week surged to about $100 a barrel for the first time since 2014 as investors calculated how the invasion could snarl the movement of resources in the region.
Over the weekend the US, European Union, Canada and the UK said they intended to cut off some Russian banks from the Swift network, a global payment system that connects international banks and facilitates cross-border financial transfers. The US said it would sanction Russia's central bank, a move to stop the bank from deploying its more than $600 billion in reserves to aid the Russian economy.
Meanwhile, President Vladimir Putin ordered Russia's nuclear-deterrence forces to be put on alert. The move would put Russia's network of nuclear missiles into a state in which it could be used if necessary.
Russian sovereign debt sold off heavily, with the yield on a dollar-denominated note maturing in five years surging to 25%, from 9% Friday.
Bitcoin prices edged higher and hovered around $41,000 in recent trading.