The Monday Report – 07 March 2022

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

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

By Greg Peel

Nuclear Scare I

The ASX200 was down only -25 points at 11am on Friday following a -0.5% fall for the S&P500 when news came through Russia had attacked Ukraine’s and Europe’s largest nuclear plant. An hour later the index was down -125.

The bounce was fairly swift, likely reflecting news that no reactor had been damaged, and the index settled at -60 points through the afternoon – investors not wanting to take too much risk over a weekend – except for whoever drove another 20 point market-on-close pop.

Among the sectors, energy unsurprisingly fell -1.1% after oil prices pulled back -3% overnight, but a -0.3% fall for materials seemed at odds with big gains in base metal and iron ore prices and further strength in gold. Indeed the top five index winners featured three gold miners in the top positions, with Incitec Pivot ((IPL)) in fifth, presumably because Russia is a big exporter of fertiliser.

Iron ore rose 3.3% but elephant in the sector BHP Group ((BHP)) fell -0.2%. We might note BHP is a big producer of uranium, and pure-play uranium stocks were hammered on the day. Paladin Energy ((PDN)) topped the index losers with -14.5%.

Uranium has been on a tear in recent weeks, driven by a “green” theme that has only been strengthened by soaring oil and coal prices. But were another Ukrainian plant to suffer a disaster (the last one being Chernobyl), the world might think again.

Technology followed down the Nasdaq as usual (-3.6%). Outside of Paladin the index losers’ board was made up yet again by the recent group of silly volatility stocks, which includes Block ((SQ2)), down -9.2% and Zip Co ((Z1P)), down -8.0%, but also Polynovo ((PNV)), -8.6%, and PointsBet Holdings ((PBH)), -8.3%.

Financials provided a lot of the market cap weakness in falling -0.7%, with the situation not getting any brighter for the big insurers.

Utilities rose 0.7% after Cannon-Brookes & Co upped their bid for a defiant AGL Energy ((AGL)), while the best performing sector was staples, either because investors returned after the big supermarkets went ex or simply the fact food is something you can’t do without in a nuclear winter.

Not a lot has changed, war-wise, over the weekend, with Russia’s advance remaining steady and indiscriminate. Wall Street saw a similar plunge and recovery on Friday night to our market and with commodity prices again surging, our futures are up 28 points to a -0.8% fall in the S&P500.

Nuclear Scare II

The Dow fell -500 points from the open on Friday night despite reports by then having confirmed no damage to the Ukrainian reactors. The mere thought of Russia now being in control of six reactors, as well as Chernobyl, was enough.

The fall came despite the US reporting 678,000 new jobs added in February when 440,000 were forecast. On any other day this would have been a very positive result, confirming strength in the US economy despite omicron and soaring inflation. Indeed, soaring inflation is providing greater impetus for those workers previously happy to continue collecting the dole to get back into the workforce now additional government stimulus measures have long expired.

Janet Yellen said on Friday night she did not believe Fed tightening will send the US economy into recession.

The jobs report did not stop the US ten-year yield plunging once more, by -12 points to 1.72%, It was another night for the safe havens, with the US dollar index rising 0.9% and gold jumping US$30/oz.

The fall in bond yields was no saviour for the Nasdaq, but Wall Street did rally off its lows in the afternoon on the technical set-up.

The S&P500 to date has held the recent 4300 low. The index traded down below 4200 on the initial invasion but since recovering somewhat, and it has not managed to meaningfully breach 4300 on subsequent down-days. When this level again held on Friday night the buyers stepped back in.

The biggest issue for Wall Street other than the war itself is the surging oil price, which jumped another 6% on Friday night to be up 25% for the week. Wheat is up 40%.

The oil market awaits any sign of Iranian sanctions being lifted, which might spark a sharp pullback, but this has been on the cards for some time now. Meanwhile, sanctions are being increased on Russia and on Belarus, while more and more US companies are taking matters into their own hands.

On Friday night Airbnb said it too was suspending operations in Russia and Belarus. It fell -5.9%. Microsoft is suspending sales and services. It fell -2.0%.

With the Russian stock exchange remaining closed, to avoid a flight of capital, the first ot the Russia-specific ETFs trading in the US has pulled stumps. The London Exchange is seen as the “true” Russian stocks market, where falls of -95% have been booked in Russian stocks.

Commodities

Only iron ore has bucked the general trend evident above, but not by much.

What is rather bizarre, and a clear sign of the times, the Aussie is up 0.6% to the US dollar, which is up 0.9% to its basket of trading partner currencies, of which we are not one.

The SPI Overnight closed up 28 points or 0.4% on Saturday morning.

The Week Ahead

The US February CPI is out on Thursday night but will only have captured the beginning of the recent commodity price surge that really picked up pace last week.

The US will also see numbers for trade (January) and consumer sentiment next week.

China reports its February trade numbers today and inflation on Wednesday.

Locally we’ll see the ANZ Bank jobs series today, NAB business confidence tomorrow and Westpac consumer confidence on Wednesday.

The RBA governor speaks on Wednesday.

On the stock market, this week is the biggest week in the ex-dividend season. Each day the ASX200 will begin with a mathematical handicap.

Be ready today from ex-divs from Bendigo & Adelaide Bank ((BEN)), CSL ((CSL)), REA Group ((REA)), Ramsay Health Care ((RHC)) and Super Retail ((SUL)), among others.

The Australian share market over the past thirty days…

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