Daily Market Reports | Mar 01 2022
This story features FORTESCUE LIMITED. For more info SHARE ANALYSIS: FMG
The company is included in ASX20, ASX50, ASX100, ASX200, ASX300 and ALL-ORDS
| World Overnight | |||
| SPI Overnight | 7044.00 | + 21.00 | 0.30% |
| S&P ASX 200 | 7049.10 | + 51.30 | 0.73% |
| S&P500 | 4373.94 | – 10.71 | – 0.24% |
| Nasdaq Comp | 13751.40 | + 56.78 | 0.41% |
| DJIA | 33892.60 | – 166.15 | – 0.49% |
| S&P500 VIX | 30.15 | + 2.56 | 9.28% |
| US 10-year yield | 1.84 | – 0.15 | – 7.40% |
| USD Index | 96.76 | + 0.14 | 0.14% |
| FTSE100 | 7458.25 | – 31.21 | – 0.42% |
| DAX30 | 14461.02 | – 106.21 | – 0.73% |
By Greg Peel
Material Gains
In an extraordinary session on the ASX yesterday, only three sectors looked like they turned up to play. Property gained 1.0%, but does not have the same market cap impact as energy, up 1.4%, and materials, up a whopping 3.0%.
The rest barely troubled the scorer. Even the banks sat it out, as insurers led the financials sector down -0.3% due to another hundred-year flood in the north, eleven years after the last one.
It was also a very choppy session, featuring a good deal of not knowing which way to run. The ASX200 opened up over 50 points, likely due to a strong session on Wall Street, which had our futures up 166 points on Saturday morning. Then someone pointed out that new sanctions, including cutting Russian banks off from SWIFT, were imposed over the weekend.
The index fell back to be down -18, ahead of the day’s local economic releases.
Omicron impact? Retail sales rose 1.8% in January. Mind you, they did fall -4.4% in December.
The result drove up retail REITs, and thus the property sector.
December quarter numbers showed improvement in company profits (+2.0%) and wages (+1.9%), as the economy bounced out of delta. The surprise were inventories, which rose 1.1% when economists had forecast a flat result. If economists had paid attention to the local result season, they would have noticed many an Australian distributor/retailer missing heavily on cash flow forecasts, as they elected to spend on inventories to combat supply shortages.
The inventory number has economists upping their GDP forecasts.
But if those releases were enough for a sharp bounce, the real driver through the rest of the session were commodity prices. Brent crude up 3% to US$100/bbl. Iron ore up 4%. Gold up US$18/oz.
A 3% gain for the materials sector is a big number in itself, but consider that is net of Fortescue Metals ((FMG)) going ex-dividend.
And the Aussie is up a full cent.
It is also notable that on the last day of the earnings season, results took a back seat. For once, no wild swings to report, which is why so many sectors barely moved the dial yesterday. There was still some volatility, but exclusively among stocks that had already reported.
It looked for all the world like Wall Street was locking in another sharp, risk-off session last night, but US indices have made another one of their last-half-hour surging comebacks. But even when the Dow was down -500 points late in the session, our futures were still positive, ahead of closing up 21.
One slightly ominous point to note. One of the sanctions imposed by the US and Europe, but little spoken of, is that imposed on goods travelling across Russia to Europe by rail, which given financial sanctions cannot necessarily be paid for anyway.
China sends all its exports to Europe by rail, through Russia. It now has to do so by sea. Another common element of the local earnings season has been supply shortages and soaring freight charges. The cost of shipping a container is now 20x that of 2019, recently surging again on the rail situation. There are only so many ships.
We are not immune. Inflation is not going away – quite the opposite, particularly when you add in oil.
Indecision
On Thursday last, Wall Street staged a mid-session turnaround when the list of sanctions imposed on Russia did not include energy exports, or removing Russian banks from SWIFT. The rally then kicked on on Friday night. It therefore stood to reason the cutting off some Russian banks from SWIFT over the weekend would send Wall Street tumbling back down last night.
The Dow was down over -500 points in the last hour, but it was not a straight fall to get there. The indices actually opened higher, then fell, then squared up again, then fell, ahead of the late rally to the close.
In other words, no one has any clue.
The big US banks copped it from both sides last night, but in the end the S&P500 financials sector only closed down -1.5%. US banks have exposure to Russia (Citigroup the largest at US$10bn), but more notably, net interest margins are back under pressure once more.
The banks were the big winners on margin relief, implicit in the US ten-year yield hitting 2%. Last night a global flight to safety had the ten-year down -15 points to 1.84%.
More sanctions were imposed last night. On top of the SWIFT thing, and blocking access to Russian reserves held in dollars and euros, US companies are now banned from any dealings with the Russian central bank, Treasury or sovereign wealth fund.
The rouble has crashed (another) -25%. You think we’ve got inflation problems?
Wall Street is caught between the yin and yang of Ukraine/Russia implications, history, and the starting point for the latest tumble. The Fed set Wall Street off in January, and the S&P500 had only made it back half way before this latest tumble. At what point are markets oversold?
History suggests one should sell on the threat of invasion and the buy on the invasion.
Then there’s the Fed, again. Will it hold back at all, given the circumstances? One hundred dollar oil is a step on the pathway to stagflation.
Commodities
| Spot Metals,Minerals & Energy Futures | |||
| Gold (oz) | 1907.40 | + 18.40 | 0.97% |
| Silver (oz) | 24.43 | + 0.16 | 0.66% |
| Copper (lb) | 4.50 | – 0.03 | – 0.56% |
| Aluminium (lb) | 1.57 | + 0.01 | 0.74% |
| Lead (lb) | 1.09 | + 0.02 | 1.50% |
| Nickel (lb) | 11.44 | + 0.12 | 1.09% |
| Zinc (lb) | 1.67 | + 0.02 | 0.95% |
| West Texas Crude | 95.72 | + 4.13 | 4.51% |
| Brent Crude | 100.99 | + 3.06 | 3.12% |
| Iron Ore (t) | 139.10 | + 5.65 | 4.23% |
What we don’t see above is surging prices in some of Russia’s main commodity exports, such as palladium, wheat, fertiliser and coal, as well as oil and gas.
Nor does it capture moves up in the likes of lithium, rare earths and uranium.
Gold has resumed its safe haven status. When gold shot up on the initial invasion, bitcoin was trashed. Bitcoin is now on the rise again, as regulators look to cut Russia off from getting around sanctions via cryptos, and Russia imposes limits on capital heading offshore for safe keeping.
The Aussie, as noted, is up a cent or 1.4% at US$0.7259.
Today
The SPI Overnight closed up 21 points or 0.4%.
The earnings season is over. Hallelujah.
Keep an eye out for ex-divs though.
The RBA meets today. Could be interesting.
Today we’ll see the December quarter current account, including the terms of trade. Could be interesting.
It’s the first of the month, hence manufacturing PMI numbers are due from around the world.
For upcoming earnings result dates, and a summary of results to date, please refer to the FNArena Corporate Results Monitor.
The Australian share market over the past thirty days…
| BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS | |||
| ABC | AdBri | Downgrade to Hold from Buy | Ord Minnett |
| AGI | Ainsworth Game Technology | Downgrade to Neutral from Outperform | Macquarie |
| APX | Appen | Downgrade to Hold from Buy | Ord Minnett |
| BKL | Blackmores | Downgrade to Neutral from Outperform | Credit Suisse |
| BVS | Bravura Solutions | Upgrade to Buy from Hold | Ord Minnett |
| BXB | Brambles | Downgrade to Neutral from Outperform | Macquarie |
| CHC | Charter Hall | Upgrade to Outperform from Neutral | Credit Suisse |
| CQR | Charter Hall Retail REIT | Downgrade to Neutral from Outperform | Credit Suisse |
| DEL | Delorean Corp | Downgrade to Hold from Add | Morgans |
| DMP | Domino's Pizza Enterprises | Upgrade to Neutral from Underperform | Credit Suisse |
| Upgrade to Add from Hold | Morgans | ||
| HMC | HomeCo | Upgrade to Buy from Hold | Ord Minnett |
| ILU | Iluka Resources | Downgrade to Underperform from Neutral | Credit Suisse |
| KGN | Kogan.com | Downgrade to Neutral from Outperform | Credit Suisse |
| LME | Limeade | Downgrade to Neutral from Outperform | Macquarie |
| MPL | Medibank Private | Upgrade to Buy from Neutral | Citi |
| Upgrade to Add from Hold | Morgans | ||
| NSR | National Storage REIT | Upgrade to Buy from Hold | Ord Minnett |
| NXT | NextDC | Upgrade to Buy from Accumulate | Ord Minnett |
| PAN | Panoramic Resources | Upgrade to Add from Hold | Morgans |
| PRU | Perseus Mining | Buy | Citi |
| PTB | PTB Group | Downgrade to Hold from Add | Morgans |
| PTM | Platinum Asset Management | Upgrade to Neutral from Underperform | Credit Suisse |
| QUB | Qube Holdings | Upgrade to Buy from Accumulate | Ord Minnett |
| RED | Red 5 | Downgrade to Hold from Add | Morgans |
| RHC | Ramsay Health Care | Upgrade to Buy from Neutral | Citi |
| SBM | St. Barbara | Downgrade to Neutral from Outperform | Credit Suisse |
| SGM | Sims | Downgrade to Neutral from Outperform | Macquarie |
| SGP | Stockland | Upgrade to Outperform from Neutral | Credit Suisse |
| Upgrade to Neutral from Underperform | Macquarie | ||
| TPG | TPG Telecom | Downgrade to Hold from Add | Morgans |
| WGN | Wagners Holding Co | Upgrade to Outperform from Neutral | Macquarie |
| WOR | Worley | Downgrade to Underperform from Neutral | Credit Suisse |
| Downgrade to Neutral from Outperform | Macquarie | ||
| Downgrade to Lighten from Hold | Ord Minnett | ||
| WOW | Woolworths Group | Upgrade to Buy from Neutral | Citi |
| Upgrade to Neutral from Underperform | Credit Suisse | ||
For more detail go to FNArena's Australian Broker Call Report, which is updated each morning, Mon-Fri.
All overnight and intraday prices, average prices, currency conversions and charts for stock indices, currencies, commodities, bonds, VIX and more available on the FNArena website. Click here. (Subscribers can access prices on the website.)
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For more info SHARE ANALYSIS: FMG - FORTESCUE LIMITED
