Global Fundamental Analysis 09/03/2022

Australian Market

Australia’s S&P/ASX 200 lost 0.8% as the energy and material sectors dove amid a surge in oil prices. This was the lowest close since Jan. 31. Healthcare was the standout sector, closing 1.9% higher, while energy stocks fell 3.6% and materials stocks lost 3.3%.

US Market

U.S. stocks traded erratically, bouncing between losses and gains as investors tried to keep up with a barrage of headlines, even as bond yields, oil and gold prices rose, a day after fears of oil inflation pushed the Dow Jones Industrial Average into a correction. The S&P 500 lost 0.7% and the blue-chip Dow Jones Industrial Average fell 0.6%. The technology-heavy Nasdaq Composite, the first of the major indexes to fall into bear-market territory, slid 0.3%.  

Investors are scrambling to analyze the likely broader impact of Russia’s invasion of Ukraine and the hardening Western response. Market volatility has jumped as relations between the West and Russia have hit new lows. Soaring commodity prices have raised the prospect that global growth could take a hit and have muddied the outlook for central banks seeking to tame inflation by raising interest rates.  

Analysts watching the markets said the morning’s selloff turned sharply after an interview with Ukrainian President Volodymyr Zelensky in which he seemed to reject Ukraine joining NATO and appeared open to a potential agreement with Russia that could end hostilities. The interview, aired on ABC News, led to the market’s quick turnaround, said Michelle Cluver, an analyst at financial-services firm Global X. “It was such a big change of view,” she said, and raised hopes that the war would end soon. Now the market has to wait and see if any signs of actual de-escalation emerge, she said.

Commodities

Gold futures climbed above $2,000 an ounce, but settled below their highest price on record, as the war in Ukraine fueled bids for safe haven assets like bullion. Gold’s recent surge is “not only a reaction to the Ukraine situation, but also a sign that shorts in the futures markets are abandoning their battle to keep the price corralled,” said Brien Lundin, editor of Gold Newsletter.

April gold futures rose 2.4% to settle at $2,043.30 an ounce and traded as high as $2,078.80, which put bullion at its highest levels in about 19 months. “The rally in gold has been accelerating since the Russia/Ukraine tensions began to escalate in earnest back in February, and renewed fears about stagflation are further supporting the gains,” analysts at Sevens Report Research wrote. “With real rates dropping sharply from recent highs and market-based inflation expectations at new highs, the backdrop for gold is decidedly bullish,” they said.

Oil Futures

Oil futures gained nearly 4%, with U.S. and global benchmark prices posting the highest settlements since 2008, as the U.S. announced a ban on crude imports from Russia. Oil futures have marched higher in the wake of Russia’s Feb. 24 invasion of Ukraine and gained after the European Union announced a plan to reduce its dependency on Russian energy and U.S. President Joe Biden announced a ban on Russian oil imports.  

The immediate impact of the announcement was “definitive, with the Brent benchmark jumping $5 per barrel after the news broke,” said Bj?rnar Tonhaugen, head of oil markets at Rystad Energy. Prices, however, eased back from the session’s highs. The impact on U.S. supply may be limited, he said a market note, but the ban “makes it more of a challenge to trade in Russian oil and more likely that other countries may follow suit.”  

West Texas Intermediate crude for April delivery rose 3.6% to settle at $123.70 a barrel on the New York Mercantile Exchange – the highest front-month contract finish since Aug. 1, 2008, according to Dow Jones Market Data. May Brent crude, the global benchmark, rose 3.9% to settle at $127.98 a barrel on ICE Futures Europe for its highest finish since July 2008.

Forex

Major currencies were mixed against the US dollar in European and US trade. The Euro rose from lows near US$1.0850 to highs near US$1.0955 and was at US$1.0905 in afternoon US trade. The
Aussie dollar fell from highs near US73.10 cents to lows near US72.45 cents and was at US72.70 cents in US trade. And the Japanese yen eased from 115.35 yen per US dollar to JPY115.77 and was at JPY115.63 in US trade.

European Markets

European sharemarkets were mixed on Tuesday as investors digested news that the US will ban oil imports from Russia. Banks rose 2.5% in response to higher bond yields. A key inflation measure tracked by the European Central Bank lifted to 9-year highs. Technology led the declines (down 2.5%) with materials down 1.1% and healthcare down 1%. The pan-European STOXX 600 index fell by 0.5%. The German Dax index lost less than 0.1% but the UK FTSE index was up by 0.1%. In London trade, shares in Rio Tinto fell by 2.2% while shares in BHP were lower by 2.8%.

Asian Markets

Earlier Tuesday, Chinese stocks ended the session sharply lower amid a regional selloff, as investors weighed the possibility of a ban on Russian crude imports by the U.S. and European allies. The benchmark Shanghai Composite Index fell 2.4% to its lowest closing since November 2020. The Shenzhen Composite Index dropped 2.9%, while the ChiNext Price Index declined 1.8%. Commodities stocks such as metal miners and coal companies led the downturn.  

Hong Kong’s Hang Seng Index fell 1.4% amid continued concern over rising commodity prices driven by the Russia-Ukraine conflict. Price gains in oil and base metals are fraying nerves in Asia, given the region is a huge net importer of both, Oanda said. The Hang Seng TECH Index declined 3.2%. Japanese stocks were weighed down by sharp declines in steel and bank shares, as concerns grew over the war in Ukraine and its impact on global trade. The Nikkei Stock Average fell 1.7% to close below the 25000 mark for the first time since November 2020.