Morning Wrap: ASX to fall as oil hits US$120, Shanghai lays out "extraordinary" stimulus

US markets were closed on Monday for the observance of the Memorial Day holiday, European markets rallied on China reopening and stimulus optimism, Brent crude now at US$120 and Bitcoin is making a comeback. 

Let’s dive in.

Stocks

• With Wall Street closed, European markets will have to do

  • Major EU benchmarks including the regional Stoxx Europe 600, Germany’s Dax index and FTSE all rose between 0.6% and 0.8%

  • European stocks are having their best week since mid-March

• European markets were buoyed by solid US consumer data, China’s reopening and signs that inflation has peaked

• Federal Reserve Governor Christopher Waller said overnight that he supports “several meetings” worth of half-point rate hikes until inflation cools down to the 2% target band 

• Cryptocurrencies can be a useful gauge for risk sentiment

  • Bitcoin is showing early signs of a bottom, rallying 7.2% overnight to US$31,560

  • Crypto hasn’t seen quite the same rebound as equity markets

  • This might suggest large players are in ‘wait and see’ mode before making any kind of big bets 

Economy

• Shanghai has started allowing businesses to reopen

  • The two-month lockdown will be lifted for residential areas from June 1

  • “Extraordinary” stimulus has been announced, totalling 300bn yuan (US$50bn) to get the economy back on its feet

  • Tesla reported that its Shanghai plant is operating at roughly 70% of pre-lockdown capacity 

• Germany inflation rose to 7.9% in May

  • Highest reading in almost half a century 

Commodities

• Iron ore inched higher amid better market sentiment after lower cases of covid in China and easing restrictions in Shanghai, according to Fastmarkets

• Oil prices are rallying off easing lockdowns in China and the EU closing in on a Russian oil ban

• Gold is holding around US$1,855 an oz

There will be no ETF table in today's wrap as most of these ETFs are US-listed.

#1 Energy

"Markets pricing in peak virus in Beijing and Shanghai are behind the rally in oil prices today, with a China reopening likely leading to increased oil consumption," said Oanda senior market analyst, Jeffery Halley.

"Unlike recent times, markets seem unconcerned about oil moving back to March highs, emphasising how much pent-up risk-sentiment demand there appears to be out there."

There are further upside catalysts for oil markets including:

• OPEC+ meeting on Thursday

  • The market does not expect any production increases

  • The group currently cannot pump enough to meet present production quotas

• EU is progressing the Russian oil import ban

  • EU leaders have struck a partial ban with concessions to appease Hungary

  • The embargo will include bans on oil and petroleum products, but allow a temporary exemption for oil delivered by pipeline, according to the Financial Times

Source: TradingView

#2 Nickel

Nickel prices are up around 10% in the past week amid China reopening hopes. Although, trading volumes have remained very thin on the London Metal Exchange (LME).

Source: TradingEconomics

ASX corporate actions occurring today:

• Ex-dividend: IFT, MFB, MOT, MXT, ORI, PGG, PIA

• Dividends paid: ASG, JHG, KPG, PL8, RHI

• Listing: None

• Issued shares: ACF, AD8, ATC, AUZ, AXE, BEX, BRK, BSX, DCL, DUB, ESS, FGG, GAL, GCX, GMD, HMX, ICR, IMB, IRD, KPO, LKE, LRS, MQG, MRD, NBI, NZM, RAD, RDN, RDT, RML, RNE, RNU

Other things of interest: 

• Aus Building Permits (April) at 11:30 am

• Aus Company Gross Profits (Q1) at 11:30 am

• China Manufacturing PMI (May) at 11:30 am

• China Non-manufacturing PMI (May) at 11:30 am