Morning wrap: Russia-Ukraine tensions weigh on Wall Street, ASX set to falter

ASX Futures (SPI 200) imply the ASX will open 64 points lower, down -0.9%. 

The market is high on anxiety amid the elevated cost-of-living in many countries, looming interest rate hikes and escalating tension between Russia and Ukraine. 

Major US indices tried to rally, but closed towards session lows.

Stocks 

• The Russian invasion has escalated from a potential risk to highly likely, and the market’s skittish behaviour is reflective of that

• Major US averages opened flat or slightly higher, but investors were quick to get on the defensive and exit out of risk assets 

• The Dow Jones (blue chip) and S&P 500 (large cap) both breached their 200-day moving averages, an increasingly bearish sign that major indices could once again dip into "correction" territory. The indices need to bounce in the next few days to stay out of trouble

• US earnings season is coming to an end. Of the 358 companies in the S&P 500 that have reported, 78.2% have beat analyst expectations, according to Refinitiv 

• Overnight, stocks linked to the economy fell the most, including financials and energy 

• Technology stocks held up better than most, but this was after the Nasdaq (tech) almost fell -3% yesterday

Economy

• The likelihood of the US Federal Reserve raising interest rates by 50 bps has stabilised around 60%, according to CME 

• The probability of a 50 bps hike was 49.2% yesterday and 89% last Friday 

Commodities 

• Iron ore prices has taken small breaks between its spectacular run from US$80/t last November

• “Demand from steel mills was weak due to previous high stock levels and ongoing sintering production cuts in north China,” according to Fastmarkets on Monday 

• Russia-Ukraine tensions continue to fuel higher oil prices

• “... the oil market is extremely tight at the moment, as the IEA alluded to late last week. Demand growth is strong and OPEC+ continues to fail to hit output targets. Rather than getting closer, the gap is even widening,” said Oanda senior market analyst Craig Erlam

• Gold is getting its groove back as investors shift towards safe haven and inflation hedging assets

• "The latest developments in Ukraine have seen gold smash through US$1,850 resistance and it’s now closing in on the mid-November highs around US$1,875. If the situation does deteriorate as feared, we could see gold remain a favourite, with US$1,900 the next test," said Erlam

Investors should brace for more turbulence on Tuesday.

The ASX 200 is currently wedged between both:

• The 50-day (yellow) and 200-day (blue) moving averages

• Two trend lines (black)

ASX 200 chart, TradingView

Don't be surprised if the market continues to grind sideways in a volatile fashion.

#1 Aluminium

Aluminium prices are trading around multi-year highs on concerns that Russian sanctions could weigh on global supply. 

Aluminium prices, TradingEconomics

“There’s a risk of sanctions on Russia; people are trying to stock up on aluminium and nickel,” a metals trader told Reuters.  

Aluminium stockpiles at LME-registered warehouses are currently down 50% from March 2021 levels. 

South 32 (ASX: S32) hit all-time highs on Monday.

#2 Copper

The broad-based selloff on Monday dragged copper prices -3% lower. Prices have managed to stabilise around the US$4.5/lb level.

Surprisingly, the Global X Copper Mines ETF remains relatively unchanged, close to 8-month highs.

This could see strength come through for local copper stocks, notably Copper Mountain Mining (ASX: C6C), which tends to mirror the Copper Mines ETF.

#3 Lithium 

ASX lithium stocks were smashed on Monday, with large cap names like Pilbara Minerals (ASX: PLS) and Allkem (ASX: AKE) down -5.6% and -4.3% respectively. 

The Global X Lithium & Battery Tech ETF is looking increasingly bearish, trading below the 200-day moving average. The ETF needs to hold the $74 level or runs the risk of a much deeper correction. 

Global X Lithium & Battery ETF, TradingView

#4 Energy

The US Energy sector fell the most overnight, down -2.3%, despite crude oil prices rallying 1% higher to close at US$95 a barrel. 

This is sending mixed signals for local energy stocks.

The next catalyst for oil will be OPEC’s meeting on 2 March to discuss output levels. 

“We don’t need OPEC+ to expand targets; it’s time for unilateral action from Saudi Arabia which reportedly has the capacity to alleviate the pressures. Until then, hope lies with a nuclear deal between the US and Iran. In the absence of either, triple-figure oil looks very possible,” said Erlam. 

ASX corporate actions occurring today:

• Ex-dividend: CPU

• Dividends paid: None today

• Issued shares: ACF, AGY, AMN, BXB, COB, CSL, DSE, EMD, ERM, EVR, FZO, GEV, GMD, GW1, HLX, IMU, INF, JRV, LNY, LPD, MMM, MNB, MRD, NIC, ODA, OZL, PIQ, PPL, PVS, RCE, RNU, SMX, SPN, SRZ, SYM, TNR, TRT, WAM, WBC

Other things of interest 

• 11:30 am AEDT: RBA meeting minutes 

• 6:00 pm AEDT: UK December unemployment rate