Pre-Open Data
Key Data for the Week
- Thursday – AUS – Private Capital Expenditure ticked up 1.1% in the December quarter, which represented a 9.8% rise year on year.
- Thursday – US – Gross Domestic Product rose by an annual rate of 7% in the fourth quarter.
- Friday – EUR – Consumer Confidence
- Friday – US – Personal Spending
Australian Market
The Australian sharemarket had its worst day since September 2020 yesterday, after reports of explosions in the Ukrainian capital of Kyiv shocked the world. Consequently, investors sold down riskier assets, like equities, and flocked to traditional safe-haven assets like gold and bonds, alongside the US Dollar. Increased demand for bonds led to a 10 basis point dip in the yield of 10-year Australian bonds, down to 2.15%. Meanwhile, the global conflict, and trade sanction implications, saw the price of oil rise to its highest level since 2014.
All sectors finished lower, led by the Information Technology (-6.4%) and Materials (-4.3%) sectors, likely the consequence of the global political economic situation. Inflationary pressure has impacted asset valuations, while the Russia-Ukraine conflict is likely to impact global trade and supply chains. Technology giants Xero (-5.5%) and Block Inc (-12.9%) were major detractors, alongside miners BHP (-6.9%) and Fortescue Metals Group (-4.2%). Rio Tinto (-3.8%) also fell, even after it reported record profit and nearly doubled its dividend.
Meanwhile, the more defensive Health Care (-1.6%) and Consumer Staples (-1.0%) sectors weathered the storm better than most, although still closed lower. Woolworths and Coles held their ground, while Ramsay Health Care (0.2%) inched higher, despite its report that first-half net profit fell 30.0% and EBIT dipped 8.3%.
Qantas (-5.1%) and Flight Centre (-10.1%) both reported heavy losses and cut their dividends entirely.
The Australian futures market points to a 1.21% increase today.
Overseas Markets
European sharemarkets declined on Thursday, after news that Russian forces attacked targets across Ukraine. Market sentiment and forecasts have shifted in the eurozone, as the escalated conflict has heightened uncertainty and will impact global trade. This is in contrast to previous analyst predictions that European stocks would outperform in 2022, due to their cheapness and cyclical nature. Banking stocks were particularly affected, due to their exposure to Russia, alongside the cybersecurity threat given the attack on Ukraine banks. Barclays (-8.5%), Lloyds Banking Group (-10.7%) and Deutsche Bank (-12.5%) all sank. By the close of trade, the UK FTSE 100, STOXX Europe 600 and German DAX all fell between 3-4%.
US sharemarkets advanced on Thursday, despite the unsettled global macroeconomic backdrop. It appeared some investors decided to make opportunistic purchases in large technology stocks, as share prices have fallen recently. The Information Technology (3.5%) sector was the best performer, driven by gains in Microsoft (5.1%), NVIDIA (6.1%), Meta Platforms (4.6%) and Netflix (6.1%). Online retailer Amazon was also a key performer, up 4.5%. Meanwhile, cybersecurity stocks Fortinet (11.2%) and CrowdStrike (13.0%) soared, likely due to news that Ukraine was crippled by cyberattacks. By the close of trade, the S&P 500 (1.5%), NASDAQ (3.3%) and Dow Jones (0.3%) all closed higher.
CNIS Perspective
After months of posturing, Russia has finally invaded Ukraine. The big question for the West now is, can Russia and President Vladimir Putin be stopped?
Global investors are contending not only with uncertainty over the duration and extent of the ensuing conflict, but also by the potential supply shortages, worsening inflation due to surging energy prices, slowing economic growth and the increased risk of policy errors from central banks caught in a unique conundrum.
The fallout could have a sizeable impact on the European economy, however, Russia has a strong commercial interest in continuing to sell its energy and commodity exports into Europe, with the European Union accounting for 36.5% of all Russian imports and 37.9% of exports in 2020. The weight of this trade relationship could mitigate the risk of a long-lasting military engagement.
Financial markets were volatile overnight, with the US S&P 500 rising 1.5%, after dropping more than 2.6% earlier in the session. The NASDAQ Composite moved 3.3% higher, after being down nearly 3.5% at one point in the session.
Investors could be buying into equities because they believe central banks may be slowing down the rate hike schedule due to the geopolitical turmoil, however, expect continued volatility in the near term as leaders announce their response to this escalation.
Should you wish to discuss this or any other investment related matter, please contact your Wealth Management Team on (02) 4928 8500.
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