Global shares rose after yesterday’s hawkish comments from the Federal Reserve Chair Jerome Powell, leading to bank stocks advancing. There are continued concerns that the war in Ukraine has not come to truce and what it means for the commodity market. President Zelenskyy said Ukraine would compromise on NATO membership but not hand over any cities.
Good morning. A rebound today. I’m Melissa Darmawan for Finance News. This is your market outlook.
The Australian sharemarket is set to rise, following the S&P 500 recovering halfway from January’s sell-off.
Stocks rally as bond rout deepens
US stocks were back in rally mode after yesterday’s breather, coming off a winning week last week. Wall St bounced back from yesterday’s fall, following Fed Chair Jerome Powell’s hawkish comments that the Fed would take a more aggressive stance to hike interest rates to fight soaring inflation or higher prices. Investors are also monitoring the war in Ukraine as Russia attacks Ukrainian cities.
The month old war in Ukraine still remains top of mind by people around the globe after Russia took back a suburb of Kyiv while Russian troops continue attacks on the southern city of Mary Opal.
The incursion is raising fears that the war may escalate even further with President Biden describing it as Putin having his “back against the wall” saying that Russia could procure more severe tactics. President Biden is set to travel to Europe this week to meet with allies on the situation.
Oil prices weaken as countries from the European Union consider an embargo on Russian oil. EU officials are split on the move, with Germany and other nations pushing back as they claim they can’t go without Russian oil. Russia is the main energy supplier to much of Europe. However, concerns on supply shortages eased after reports that China is buying discounted Russian crude. It appears that China and India are still buying Russian oil, slowing down the oil price rally.
China is facing growing pressure from surrounding nations, impacting the short term outlook for demand. The oil market remains tight and appears to react from the war in Ukraine. If the ban on Russian oil unfolds, oil prices are set to soar with Russian deputy prime minister Alexander Novak, noting that it could send oil to more than US$300 a barrel for NYMEX crude.
Money is flowing back into stocks after Fed Chair Powell’s comments about the central bank acting more aggressively to raise rates or borrowing costs, signalling that the Fed would continue to raise rates as needed in order to combat inflation. Beneficiaries of these moves tend to be banks as they make money when that yield curve rises. What that means is that their net interest margin grows, in other words, they make more money when they lend that out. It will be interesting to see the outlook for next quarter’s earnings amid this.
LME trades nickel down to Shanghai levels
Trading nickel on the London Metal Exchange was within the limits for the first time since Wednesday last week, a sign that the price of nickel was inflated, bringing it to par with the price at the Shanghai exchange. The LME also said it has no current plans to ban Russian metals from its system. The other metals remained muted with the price of aluminium down 0.4 per cent and copper closing 0.2 per cent lower.
Hawkish tone spur markets to do work for Fed?
Despite the treasury rout deepening, investors are dip-buying equities. Traders are focusing on the imminent tightening by the Fed, and what it means for stocks in a rising rate environment, as we discussed earlier this week.
A point to keep in mind is that there is a lag between rate hikes and its effect on suppressing inflation and the impact on the economy. Fed Chair Powell said that the rate hike would not affect inflation until 2023.
Now, given that markets are forward looking, the hawkish tone could be enough to kick markets into action and do part of the tightening for the Fed amid the ease in supply chains.
It is a data dependent Fed with each meeting live with six more to come this year. On that note, we did receive Richmond Federal Reserve manufacturing data which rose for March though showed a slow down in growth.
Adding to this is also the tightness in the commodity market so even if a ceasefire unfolds, the sanctions are likely to stay in place with the economic implications set to continue.
Eyes are on this NATO summit this week as leaders pull together to create a means to end this war. Either way no one wins from what is happening. With upside risk to inflation and downside risk to growth, the risk of a recession is what bond traders are monitoring.
Figures around the globe
At the closing bell, the Dow Jones gained 0.7 per cent to 34,807, the S&P 500 rose 1.1 per cent to 4,512 while the Nasdaq advanced by almost 2 per cent to 14,109.
Across the S&P 500 sectors, consumer discretionary was the clear winner, up 2.5 per cent thanks to the lift in Nike. Communication services rose 2 per cent and we see tech up there, up 1.4 per cent. A call out there are financials, added 1.6 per cent. Energy stocks was the only laggard, down 0.7 per cent, taking a breather. In the broader context, it is still the outperformer for the year. The rest closed higher.
The yield on the 10-year treasury note rose 6 basis points to 2.38 per cent, gold and the greenback weakened.
Across the Atlantic, European markets closed higher. Paris gained 1.2 per cent and Frankfurt added over 1 per cent while London’s FTSE gained 0.5 per cent ahead of the release of inflation data and a budget update expected today. On the London Stock Exchange, Rio lost 1.6 per cent, BP fell almost 1 per cent and Shell dipped 0.6 per cent.
Asian markets closed higher. Tokyo’s Nikkei added 1.5 per cent, extending gains for a sixth straight session amid optimism a weakening yen could boost the outlook by exporters.
Hong Kong’s Hang Seng gained 3.2 per cent helped by Alibaba, unveiling its record share repurchase plan soaring over 10 per cent. Investors shrugged off the Hong Kong consumer price index, up 1.6 per cent over the year in February. China’s Shanghai Composite added 0.2 per cent as investors continue to mull Beijing’s pledge to support equity markets and provide economic stability.
Yesterday, the Australian sharemarket rose to a 2-month high, closing 0.9 per cent higher to 7,341 pulled up by resources stocks with materials as the best performer, while info tech was the worst. The local bourse has had a stellar run in the past five sessions, rallying four out of the five, and now consolidating at the 7,300 level, a point we haven’t seen since January this year.
Iron ore giants BHP (ASX:BHP) rallied over 5 per cent, Rio Tinto (ASX:RIO) jumped 3 per cent while Fortescue Metals (ASX:FMG) added 1.2 per cent. Alongside the miners, lithium, coal and gold players did some heavy lifting rising in the order of 2 to 3 per cent.
Amid a sell-off in US government bonds sending yields higher, price lower, National Australia Bank (ASX:NAB) outperformed the banking circle by 1.1 per cent while Westpac (ASX:WBC) added the least by 0.3 per cent. These stocks are poised to benefit from rising yields in an effort from the central bank to combat inflation through hiking interest rates.
Amcor (ASX:AMC) fell 0.9 per cent to $15.36 amid news that the global packaging company suspended new projects and investments in Russia.
Bluescope (ASX:BSL) jumped 3 per cent to $20.59 after Moody changed its outlook to positive from stable.
Boral (ASX:BLD) tumbled 3.5 per cent to $3.33 after the company flagged that financial year 2022 earnings is set to be impacted by the downside due to the severe east coast rainfall, alongside steep rises in input costs and fuel prices.
Elsewhere, KGL Resources (ASX:KGL) soared 8.9 per cent to 49 cents after the miner struck a deal to sell all the copper concentrate produced from its Jervois project in the Northern Territory to resources giant Glencore.
Taking all of this into the equation, the SPI futures are pointing to a 0.4 per cent gain.
Local economic news
The National Skills Commission is set to release the February job vacancies figures.
What to keep an eye out for today
If the local bourse takes Wall St’s lead, keep an eye out for tech shares set to take the crown from materials. The AUD has a 74 handle. We appear to be playing the U turn game here.
A few companies to keep an eye out for today, Fisher & Paykel Healthcare (ASX:FPH) is one of them after unveiling revenue guidance to be in the range of NZ$1.675 billion to NZ$1.70 billion for the 2022 financial year, which appears to be below consensus of NZ$1.76 billion.
Changes in substantial holding notices have been lodged for Flight Centre (ASX:FLT) Travel’s three founding families, following trades by James Management Services and Gehar, entities associated with founders Bill James and Geoff Harris respectively.
Sonic Healthcare (ASX:SHL) after a broker upgrade with a price target of $40 from Credit Suisse. The share price closed at $34.80 yesterday.
There is one company set to make its debut on the ASX today. Keep an eye out for Pinnacle Minerals (ASX:PIM) after raising $5.5 million at 20 cents per share.
Briscoe Group (ASX:BGP) is paying 14.5417 cents unfranked
Fonterra Share Fund (ASX:FSF) is paying 3.9925 cents unfranked
Myer Holdings (ASX:MYR) is paying 1.5 cents fully franked
Seek (ASX:SEK) is paying 23 cents fully franked
Supply Network (ASX:SNL) is paying 12 cents fully franked
Virtus Health (ASX:VRT) is paying 12 cents fully franked
There are 16 companies set to pay eligible shareholders today
Dalrymple Bay Infrastructure (ASX:DBI)
Eureka Group Holdings (ASX:EGH)
Lynch Group Holdings (ASX:LGL)
Mader Group (ASX:MAD)
Steadfast Group (ASX:SDF)
Sonic Healthcare (ASX:SHL)
Smartgroup Corporation (ASX:SIQ)
Summerset Group Holdings (ASX:SNZ)
TPC Consolidated (ASX:TPC)
Woodside Petroleum (ASX:WPL)
Iron ore has lost 3 per cent to US$143.50. Its futures point to a 1.9 per cent fall.
Gold has lost $9.10 or 0.5 per cent to US$1926 an ounce. Silver is down $0.42 or 1.7 per cent to US$24.89 an ounce.
Oil has lost $0.36 or 0.3 per cent to US$111.76 a barrel.
One Australian Dollar at 7:40 AM has strengthened from yesterday, buying 74.70 US cents (Tue: 73.98 US cents), 56.32 Pence Sterling, 90.23 Yen and 67.71 Euro cents.