U.S. equities rebounded although traded off session highs on Tuesday with Treasury yields advancing with oil after the U.S. and U.K. announced a ban on Russian oil imports.
President Joe Biden announced on Tuesday that the U.S. will ban imports of Russian fossil fuels including oil noting “the United States is targeting the main artery of Russia’s economy” and “we will not be part of subsidizing Putin’s war”. The move is matched in part by the U.K. which announced a ban on oil imports although will continue to allow natural gas and coal imports, while other European nations which rely more heavily on Russian energy will not participate.
As of 07:23am AEDT the S&P500 traded +0.77% higher having initially risen as much as +1.81% with technology +0.73% and consumer discretionary +0.98% contributing the most to gains. The Dow Jones rose +0.49%, as did the Nasdaq Composite +0.86% and the Russell 2000 +2.08% while the VIX declined -7.33% to 33.78.
Treasury yields rose on expectations of a tighter oil market sustaining higher inflation with the 2-year yield up +7.5 basis points to 1.625%, as were both the 10 and 30-year rates by +9.3 and +5.1 basis points respectively. The 1-year breakeven inflation rate rose +29.5 basis points to 5.872% following the announcement of the oil ban, with the 5 and 10-year rates also +8.1 and +7 basis points higher while the U.S. dollar index weakened -0.25% to 99.05. There was little economic data to guide markets, with U.S. wholesale inventories for January declining to +0.8% as forecast from +2.6% the prior month.
European equities initially rallied on reports that the European Union is considering joint bond sales to counter the fallout of the war to invest in energy and defence before paring back gains on news of the oil ban. A proposal may be presented after bloc leaders hold an informal summit starting on Thursday. The Euro Stoxx 600 reversed initial gains of +1.5% before finishing -0.51% lower as technology -2.83% and consumer staples -0.83% weighed in mixed breadth with 44% of stocks trading higher. The DAX edged lower by -0.02%, the CAC weakened -0.32% while the FTSE100 edged +0.07% higher. Both the DAX and Italy’s FTSE MIB have now entered correction territory, defined as a 20% drop from highs. In economic data, the final reading of Eurozone GDP for Q4 2021 showed the economy expanded at +0.3% over the quarter as forecast, and +4.6% over the year as expected. The Euro rebounded +0.49% to 1.0907 while the Pound edged +0.03% higher to 1.3108.
*Note: These prices are based on futures and/or CFD pricing and may therefore differ slightly from spot pricing.
The ASX looks set to open higher this morning with ASX200 futures +45 points or +0.65% higher at 6,989. The index declined -0.83% on Tuesday as a -3.28% decline accounting for the decline offsetting mixed performance in other sectors, although breadth was weak with only 30% of stocks higher. Major miners weakened despite higher iron ore prices with BHP down -3.7%, as was RIO -4.3% and FMG -4.5%. A pullback in aluminium and copper prices weighed on smaller miners with S32 down -6.5%, as was OZL -6.2%, IGO -1.6% and LYC -3.7%. The Australian dollar is -0.56% weaker this morning at 0.7276 while the yield on 10-year government bonds rose +9.5 basis points to 2.231% and we should expect similar rises today following gains in global yields overnight. Investors will focus on a speech by RBA Governor Lowe at 09:15 am AEDT this morning, followed by the Westpac consumer confidence index for March at 10:30 and a second speech by Governor Lowe at 13:00.
Oil prices rose following the announced import ban with both WTI and Brent crude +3.30% and +3.72% higher respectively at US$123.26 and US$127.80 a barrel. The LME announced it halted nickel trading and doesn’t expect it to reopen before March 11th following an unprecedented surge in prices that saw an increase from $50,000 to over $100,000 before easing to US$80,000 overnight with speculation a unit of China Construction Bank covering a massive short position as driving the moves following the conflict in Ukraine. Iron ore futures in Singapore eased -0.22% on Tuesday although have reversed those declines this morning to trade +0.92% higher at US$167.05. Gold rose +2.42% to US$2,046 with silver also rising +2.97% to US$26.43 as did Bitcoin +2.16% to US$38,657.
Economic data:
- RBA Lowe Speech 09:15
- Australian Westpac Consumer Confidence (MoM Mar) 10:30
- RBA Lowe Speech 13:00
This article was written by James Woods, Portfolio Manager, Rivkin Securities Pty Ltd. Enquiries can be made via info@rivkin.com.au or by phoning +612 8302 3632.
