The Overnight Report: Sanction Relief

This story features COLES GROUP LIMITED, and other companies. For more info SHARE ANALYSIS: COL

The company is included in ASX20, ASX50, ASX100, ASX200, ASX300 and ALL-ORDS

World Overnight
SPI Overnight	7074.00	– 6.00	– 0.08%
S&P ASX 200	7161.30	– 72.30	– 1.00%
S&P500	4304.76	– 44.11	– 1.01%
Nasdaq Comp	13381.52	– 166.55	– 1.23%
DJIA	33596.61	– 482.57	– 1.42%
S&P500 VIX	28.81	+ 1.06	3.82%
US 10-year yield	1.95	+ 0.02	0.83%
USD Index	96.00	– 0.14	– 0.15%
FTSE100	7494.21	+ 9.88	0.13%
DAX30	14693.00	– 38.12	– 0.26%

By Greg Peel

Too Cloudy

As the macro overlay again had the local market inevitably down yesterday, the day’s earnings result responses tried to provide some semblance of a counter on what was the biggest day on the calendar to date. It was a game played in two halves.

The session began with a -100 point plunge in the ASX200, after Putin declared the two Russian separatist states to be “independent”. We did not need Wall Street to lead the way. But by late morning that loss had been halved, as the day’s results rolled out.

Then the troops rolled in. Futures on US indices opened and headed swiftly south. The ASX200 hit -125 points down mid-afternoon. Oversold? It closed at down -72, with about 20 points recovered by market-on-close orders.

There have since been further developments on the Ukraine front, which I’ll cover below. For now we’ll concentrate on yesterday’s micro action.

Three sectors did manage to close in the green yesterday.

Consumer staples rose 1.8%, with Coles’ ((COL)) result worth 3.2% and Costa Group's ((CGC)) 8.7%. Consumer discretionary fell -2.7%, but that included Wesfarmers ((WES)) going ex. Travel stocks were once again sold down nonetheless, as border excitement gave way.

Energy rose 1.9% on the jump in oil prices.

Healthcare, which has been under the pump for a while now, rose 1.1% thanks to a 9.0% pop for Cochlear ((COH)) on result.

Technology copped a beating, without any lead from the Nasdaq. Nanosonics ((NAN)) fell -13.1% on its result. Yesterday brokers suggested the market had it all wrong in selling Tyro Payments ((TYR)) down -26% on its result release on Monday. Yesterday Tyro shares fell -10.2%.

Zip Co’s ((Z1P)) Monday pre-release continued to reverberate. It fell -9.7%. As I have noted before, when uncertainty hits the macro picture, risky growth stocks are the first to go.

Outside of result releases, we can put down remaining negative sector moves to geopolitics. The banks were particularly influential (-1.5%).

A -1.0% fall for the S&P500 overnight is no surprise, and indeed our market was able to respond to the latest developments ahead of Wall Street. Hence our futures are only down -6 this morning, with the damage already done.

Day ain’t over yet.

It’s just a shot away

As Putin sent in the “peacekeepers”, US index futures started plunging overnight, but when the opening bell rang, falls were not as dramatic. Half an hour in, the Dow was down only -75 points, finding support at 33,000. Perhaps investors decided falls over past sessions sufficiently priced in the risk.

But as the session progressed, the only way was down. As experts were trotted out on television one after the other, there was not a lot of hope on offer. The peacekeepers are there to taunt Ukraine into firing the first shot, and even if it doesn’t, Putin is not going to just stop at two “independent” states, they warned. He will look to encroach further.

The other news was that sanctions were coming. The fear is that strict sanctions that might cripple the Russian economy would also have a blowback effect on the US and global economies. Energy is at the epicentre, hence as the Dow hit -700 points down in the afternoon, Brent crude traded just short of US$100/bbl.

Around 2pm, Biden emerged to announce sanction details. An hour later Wall Street had halved its losses and oil prices fell back sharply. The first round of sanctions is relatively minor, as Washington is saving up the big guns. Go all-in now, and Putin has no further deterrent looming, no reason not to just go all-out.

At 3pm the Dow was down only -300, but late selling crimped the rebound.

The macro is well overshadowing the micro on Wall Street. Of the 358 S&P500 companies that had reported quarterly earnings by Friday, 78% reported beats to only 18% misses.

The other elephant in the room is the Fed. Will the geopolitical situation go any way to suggesting a rethink of the aggressive tightening policy the Fed is currently expected to unleash?

One indication is the odds of a 50 point March rate hike, as priced by the market, have now fallen from a peak of 90% to back around 30%.

At the end of the day, no one is certain of what the Fed will do.

And no one is certain of what Putin will do.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz)	1900.30	– 2.90	– 0.15%
Silver (oz)	24.15	+ 0.24	1.00%
Copper (lb)	4.51	+ 0.00	0.08%
Aluminium (lb)	1.53	+ 0.02	1.26%
Lead (lb)	1.07	+ 0.01	0.47%
Nickel (lb)	11.40	+ 0.19	1.67%
Zinc (lb)	1.65	+ 0.02	1.10%
West Texas Crude	92.35	– 1.60	– 1.70%
Brent Crude	96.24	– 0.03	– 0.03%
Iron Ore (t)	136.75	– 2.25	– 1.62%

If coming sanctions include bans on Russian base metal exports, prices will rise.

Iron ore’s bounce-back has taken a stumble.

Relieved that sanctions to date did not include anything to do with oil/gas exports, oil prices remain poised

It appears US$1900/oz is also enough for gold right now. It had traded up to US$1912/oz earlier in the session.

The safe haven Aussie is up 0.5% at US$0.7224.

Today

The SPI Overnight closed down -6 points.

Yesterday’s list of reporting companies was the biggest to date. Today is bigger. Tomorrow you don’t want to know about.

Today brings releases of the first elements of Australia’s December quarter GDP, in the form of construction work done and the wage price index.

The RBNZ meets this morning.

Japan is closed today.

Note that today also brings a step-up in the number of stocks going ex-dividend.

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
GMG	Goodman Group	Downgrade to Hold from Accumulate	Ord Minnett
GOZ	Growthpoint Properties Australia	Upgrade to Outperform from Neutral	Macquarie
LLC	Lendlease Group	Upgrade to Equal-weight from Underweight	Morgan Stanley
MFG	Magellan Financial	Downgrade to Underperform from Neutral	Macquarie
		Downgrade to Lighten from Hold	Ord Minnett
ORA	Orora	Upgrade to Buy from Neutral	Citi
ORG	Origin Energy	Downgrade to Neutral from Outperform	Credit Suisse
		Downgrade to Hold from Add	Morgans
		Downgrade to Lighten from Hold	Ord Minnett
QBE	QBE Insurance	Upgrade to Buy from Accumulate	Ord Minnett
RWC	Reliance Worldwide	Downgrade to Neutral from Outperform	Macquarie
SHL	Sonic Healthcare	Downgrade to Hold from Add	Morgans
SIQ	Smartgroup Corp	Downgrade to Hold from Add	Morgans
SUL	Super Retail	Upgrade to Add from Hold	Morgans
TWE	Treasury Wine Estates	Upgrade to Outperform from Neutral	Credit Suisse
TYR	Tyro Payments	Upgrade to Outperform from Neutral	Macquarie
VEA	Viva Energy	Downgrade to Hold from Add	Morgans
WES	Wesfarmers	Upgrade to Neutral from Sell	Citi

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.)

(Readers should note that all commentary, observations, names and calculations are provided for informative and educational purposes only. Investors should always consult with their licensed investment advisor first, before making any decisions. All views expressed are the author's and not by association FNArena's – see disclaimer on the website)

All paying members at FNArena are being reminded they can set an email alert specifically for The Overnight Report. Go to Portfolio and Alerts on the website and tick the box in front of The Overnight Report. You will receive an email alert every time a new Overnight Report has been published on the website.

Find out why FNArena subscribers like the service so much: "Your Feedback (Thank You)" – Warning this story contains unashamedly positive feedback on the service provided. www.fnarena.com

FNArena is proud about its track record and past achievements: Ten Years On

Click to view our Glossary of Financial Terms