The Overnight Report: Turmoil

This story features NICKEL INDUSTRIES LIMITED, and other companies. For more info SHARE ANALYSIS: NIC

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

World Overnight
SPI Overnight	6949.00	+ 5.00	0.07%
S&P ASX 200	6980.30	– 58.30	– 0.83%
S&P500	4170.70	– 30.39	– 0.72%
Nasdaq Comp	12795.55	– 35.41	– 0.28%
DJIA	32632.64	– 184.74	– 0.56%
S&P500 VIX	35.13	– 1.32	– 3.62%
US 10-year yield	1.87	+ 0.12	6.91%
USD Index	99.07	– 0.11	– 0.11%
FTSE100	6964.11	+ 4.63	0.07%
DAX30	12831.51	– 3.14	– 0.02%

By Greg Peel

Demand Destruction

It’s not every day you see the nickel price jump 56% overnight (62% at the official afternoon closing price) and then see a company called Nickel Mines ((NIC)) drop -10.6% to be the worst ASX200 performer on the day.

But it’s not every day you see nickel jump 56%.

Last night nickel jumped over 100%, before the London Metals Exchange pulled the pin. The LME decided to allow traders to defer delivery obligations on all its main contracts, including nickel, and also gave a unit of China Construction Bank extra time to pay hundreds of millions of dollars in margin calls that were due Monday, according to media reports.

After 145 years of being the world’s premier metals exchange, the LME lost control, and halted trade.

Oil trading has not been quite as wild, but it’s been wild enough. Again last night prices surged through the US$130/bbl mark, before falling back again. The bottom line is no one can afford to buy nickel at current spot – not the lithium battery makers nor the stainless steel producers.

Oil is heading the same way, as are other commodities.

Yesterday, having jumped 5.3% on Monday, the local energy sector fell -3.6%. The big oil producers that had led the charge on Monday all fell back. The materials sector fell -3.3%, despite big moves up in nickel, iron ore and gold prices.

With the financials having a flat session, it was left to the defensives of healthcare (+1.9%) and staples (+1.7%) to provide some balance. CSL ((CSL)) and Woolworths ((WOW)) both made it on to the top five winners’ board.

The top performer was actually a gold miner, but St Barbara’s 12.7% gain was due to takeover rumours.

Other sectors didn’t much trouble the scorer, which is not so surprising: what does one do at this time?

It was once said, as markets were collapsing during the GFC, that there were only two positions an investor could take: short, or foetal. That’s not the case now, as any day could bring a sharp move in either direction. Markets are hostage to every hourly snippet of news from the front.

Wall Street demonstrated that last night. Our futures are up 5 points this morning after Wall Street closed lower.

No Oil From You

US Congress is close to passing a bipartisan bill that will ban Russian oil exports, but also include a big aid package for Ukraine and avoid a government shutdown by the end of this week.

But Biden got in ahead last night, banning Russian oil imports. Boris Johnson followed suit. But while the move will further pressure fuel prices in the US and UK, their import levels are nothing like that of Europe. The EU has instead announced an intention to cut reliance on Russian oil/gas by -80% over 2022.

The problem is, where can that -80% be made up? Saudi Arabia has the power, but to increase its own production and sell to Europe would be to end OPEC-Plus, which for practical purposes is simply Saudi Arabia-Russia. Norway says it will step up, and Qatar LNG is a possible option. Renewables, at this early juncture, are not sufficient.

Australia never rates a mention, presumably as China and Japan have us tied up.

In response to the ban, Russia has itself threatened to cut off gas supplies to Europe, sending the oil price, the deputy prime minister suggested, to US$300/bbl.

Just as this news was sending markets into another turmoil (oil prices shot up again, but retreated again – this has been expected for days now), news came through Zelensky had, via Ukraine-Russia talks in Belarus, suggested he might be prepared to cede the Russian separatist states, and give up on any idea of joining NATO.

After a weak start, this had the Dow up close to 600 points. But while analysts concede the separatist state part is reasonable, no one believed the unconfirmed suggestion re NATO. After all, the EU has agreed to Zelensky’s request to fast-track Ukraine’s EU membership application.

The Dow was negative again leading into the last hour, but with the S&P500 down -10% and the Nasdaq down -20% at that point, recovered toward the close, but faded again into the bell.

Meanwhile, the list of individual corporations taking their own measures against Russia and Belarus grows daily.

Shell will cut all ties and close down all service stations in Russia. Amazon will cut off access to its cloud. Visa, Mastercard and American Express have all withdrawn their payment services. McDonalds, Yum (KFC) and Starbucks will suspend service, and any plans to open new stores. The chains will not go as far as to permanently close stores at this stage, given the number of everyday Russians they employ (Macca’s has 850 stores in Russia).

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz)	2050.90	+ 58.00	2.91%
Silver (oz)	26.45	+ 0.93	3.64%
Copper (lb)	4.65	– 0.06	– 1.30%
Aluminium (lb)	1.67	– 0.06	– 3.21%
Lead (lb)	1.13	+ 0.01	1.33%
Nickel (lb)	17.32	– 3.18	– 15.51%
Zinc (lb)	1.92	+ 0.05	2.54%
West Texas Crude	123.54	+ 4.21	3.53%
Brent Crude	127.93	+ 4.93	4.01%
Iron Ore (t)	162.25	– 0.50	– 0.31%

Given the LME halted nickel trading last night, the price fall above presumably reflects so-called “kerb-side” (aftermarket) trading. Not a lot of point in being long.

Fears on that front, perhaps, for the recently surging aluminium price.

Gold was last night’s standout. It’s not a consumable (tiny exceptions), so no limits.

As noted, the oils shot up and back down again, but analysts are tipping US$150/bbl before too long (US$147/bbl was the ultimate peak seen back in 2008).

Commodities are no longer driving up the Aussie, which is down -0.6% at US$0.7276.

Today

The SPI Overnight closed up 5 points.

NAB’s business confidence survey for February showed a gain yesterday, as omicron fears subsided and the international border reopened. The survey was conducted pre-war and pre-floods.

Today brings Westpac’s consumer confidence survey for March. The RBA governor will speak.

China reports February inflation numbers today.

Ansell ((ANN)) and Brambles ((BXB)) are among a handful of stocks going ex today.

The Australian share market over the past thirty days…

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
AIA	Auckland International Airport	Upgrade to Outperform from Neutral	Credit Suisse
IPL	Incitec Pivot	Upgrade to Outperform from Neutral	Credit Suisse
SHL	Sonic Healthcare	Upgrade to Buy from Hold	Ord Minnett

For more detail go to FNArena's Australian Broker Call Report, which is updated each morning, Mon-Fri.

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