Summary: One of the world’s biggest suppliers of oil, Russia, is set to lose another key customer, with the US considering axing Russian imports of oil and gas. The market is pre-empting what could happen and the oil price surged 10%, benefiting Australian energy stocks like Woodside, with its shares rising 10%. Wheat prices continue to set new highs, rising 5%, to the benefit wheat investors and wheat stock like GrainCorp which also surged to a record, while agribusiness Elders rose 2%. Elsewhere, iron ore stocks break loose as the iron ore price heads back to $177. APAC considerations below.
Co-written by Market Strategists Jessica Amir in Australia and Redmond Wong in Hong Kong.
What’s happening in equites markets?
- Commodities roar; with oil (Crude oil (OILUSAPR22 & OILUKMAY22) surging 10% to $126, and oil Brent rising above $135, while Dutch gas rose 23%. In soft commodities, wheat rose 7%, Corn rose 5%. It comes large commodity exporters Russia and Ukraine remain cut off from much the world, due to sanctions on Russia and Ukraine’s export terminal remaining closed. And now the US says it’s considering banning imports of Russian oil and gas. Just imagine what will happen to commodity prices if further supply is taken out of the market. Ouch. It’s terrible for global oil consumers. But a boon for commodity traders and commodity stocks. Australian oil and gas giant Woodside (WPL) shares rose 10%, Santos (STO) shares rose 10%.
- The Gold price is up 2% to $2,003, which is one of its highest levels on record. The last time gold was this high was in the covid19 pandemic, when gold touched $2,063 (a record). The gold rush is being felt on the ASX; Gold stocks like Gold giant, Newcrest Mining (NCM) is up 5%. While other gold stocks in the ASX200 are also doing well, as gold chases another all time high. Northern Star Resources (NST) shares rise 6.2%, Gold Road Resources (GOR) is up 6.2%, Perseus Mining (PRU) is up 5%, Evolution Mining (EVN) and Silver Lake Resources (SLR) follow.
- The Australian share market ASX200 (ASXSP200.I) fell for the second session, falling 0.8%. Dragging down the market, were tech stocks ahead of the US Fed Reserve kicking of a set of interest rates rises. US giant Block (SQ2) the 7th biggest stock on the ASX, fell 10%, While European property Westfield owner Unibail-Rodamco Westfield (URW) fell 8%. Elsewhere, Qantas (QAN) fell about 7% given its costs are going to get ugly as the oil price is rising to fresh records. Also on the downside, Ingham’s (ING) Australia’s biggest chicken company continued its fall losing 4.4% with traders betting its shares will continue to fall, as wheat price rises... (note wheat is the biggest cost to Chicken producers, as wheat is 80% of the cost of growing a chicken). Another ouch.
- In Asia, Hong Kong’s Hang Seng (HSI.I) fell 3.6% and China’s CSI300 (000300.I) fell 1.7% in early trading, following talk on Russian oil embargo sending Brent Oil futures and WTI Crude to as high as USD139 and USD130.50 respectively. HSBC (00005) fell 6%. Big-techs names declined 3% to 7% across the board. Energy stocks were the bright spots. CNOOC (00883), PetroChina (00857), China Coal (01898) were all up more than 3%. Fertilizer producers, China Bluechemical (03983) and China XLX (01866) rose 4% and 3% respectively. In Singapore, the Straits Times Index (STI) was relatively calm and off a modest 0.5%. [Section written by Redmond Wong, Hong Kong].
- The US market is poised to open lower on Monday. The S&P 500 (US500.I) futures are suggesting a 1.4% drop and the Nasdaq 100 (USNAS100.I) futures are eyeing a 1.9% drop. Money is likely to continue to come out of tech stocks and continue to move into; oil and gas stocks, and other commodities that are surging amid Russian sanctions.
What to consider
- Uranium stocks are back in focus with Australia to spend at least $10 billion ($7.4 billion Australian dollars) on building a new base to house a future fleet of nuclear submarines, either in Newcastle, Port Kembla in NSW or in Brisbane (which is in Queensland). It comes as Australia is planning to build a fleet of nuclear sub marines in the coming decades, with the assistance of the US and UK governments, which will allow Australia to greater protect the Asia Pacific. Stocks like BHP (BHP), Paladin Energy (PDN) are involved in Uranium.
- In Asia, China’s National People's Congress (NPC) convened over the weekend. Premier Li Keqiang delivered his Government Work Report to the NPC. The around 5.5% GDP growth target was at the high end of economist expectations (5% to 5.5%) and in line with provincial targets released last month. CPI target is set at around 3%. M2 money supply growth and aggregate financing growth is targeted to be in line with nominal GDP growth. On the subject of the property sector, Li reiterated that “housing is for living in, not for speculation”. No property tax was mentioned so it should have been shelved. He remarked that the Government would satisfy reasonable housing demand and implement city-specific policies. The budget deficit target is higher than the official target pf 2.8% of GDP once we include the RMB2.3 trillion transfers from SOE profits and the fiscal stabilization (which will bring the number to 4.6%). Tax cuts and rebates of RMB2.5 trillion in total are targeted (vs. RMB1.1 trillion in 2021). The tone of Li’s Report is in line with the Chinese Communist Party’s (CCP) Central Economic Work Conference last December: stabilizing the economy and engineering a sustainable recovery in growth on the basis of stability but no massive stimulus in the cards. [Section written by Redmond Wong, Hong Kong]
- Iron ore prices continue to storm higher, with iron ore futures prices (SCOA, SCOH2, SCOH3) charging 6.3% to $167, meaning, the steel-making ingredient’s price is at 9 month highs. The iron ore price is up 88% from its November low on expectations China will ramp up its buying as we’ve been reporting. We also think the iron the iron ore price could get as high as $177 in April. Iron ore giants are looking increasingly bullish; BHP (BHP) shares are now up 10% in over a week Rio Tinto (RIO) shares are up 9% in a week.
- The Australian dollar is increasingly being sought after and is acting as a ‘safe haven’ with the AUDUSD forming a strong uptrend and rising for the 6th week, pushing up 6%. The AUD is also outperforming global currencies as Aussie commodities; oil, LNG, iron ore, coal, wheat, other grains, are in high demand, as Russia and Ukraine supply has been taken out of the market. And given commodity prices are at record highs, it means, Australia is set to earn from money this year, from its trade surplus (the profit from exports minus imports). And this support the Australian dollar rallying up and makes increasing by foreigner increasingly attractive. From a technical perspective, the AUDUSD is looking to crack over $0.75, after rising above its 50 and 200 day moving average.
- Fertilizer stocks are in focus; After Russia invaded Ukraine (Feb 24), natural gas prices have surged As nitrogen fertilizers, such as urea, use natural gas or coal as the major feedstock, the price of nitrogen fertilizers surged and so did fertilizer stocks. For those traded in Hong Kong, China BlueChemical (03983) rose the most at 16%. The company has long-term contracts to buy natural gas from its parent CNOOC and prices are reset only quarterly and are against crude oil not natural gas prices. For those who think that China’s recent measures to stabilize coal price will work to cap domestic coal prices in China, coal based urea producer, China XLX Fertiliser (01866) may also look interesting. The most interesting opportunity is in the US, with producers, such as CF Industries (CF) and Nutrien (NTR) making nitrogen fertilizers using cheap US natural gas and sell them to the European and Asian markets is like arbitrating, to a certain extent, the huge gap between cheap U.S. natural gas and extremely expensive European and Asian natural gas. [Section written by Redmond Wong, Hong Kong]
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