Morning wrap: Wall Street rallies as Russia-Ukraine tensions ease, ASX set to jump

ASX Futures (SPI 200) imply the ASX will open 71 points higher, up 1.0%.

Risk appetite improved overnight after Russian troops began pulling back from the Ukraine border.

Major US indices jumped more than 1%, led by tech stocks.

Stocks 

• Russia maintained that it never intended to invade Ukraine and the return of some troops is in-line with original plans

• Recent losers bounced the most, notably technology, travel and renewable energy/green metals

• The Dow Jones (blue chip) and S&P 500 (large cap) closed above their 200-day moving averages - a much needed bounce to stay out of trouble. Though, the risk environment remains elevated 

• 78% of US stocks advanced, meaning the rally was broad-based and not isolated towards a handful of mega cap stocks 

• 61% of US stocks remain below their 200-day moving averages, meaning the market lacks breadth and remains bearish 

• Marriott International shares jumped 5% to all-time highs after December quarter revenues doubled to US$4.5bn versus FactSet consensus of US$4bn   

Economy

• US January producer-price index rose 1% on-the-month, double the 0.5% increase expected by economists surveyed by The Wall Street Journal 

• Inflation at the producer level has risen 9.7% compared to last year 

• Wage inflation in the UK rose 4.3% in the three months to December, well above consensus expectations of a 3.8% increase 

Commodities 

• Iron ore prices hit limit-downs of -10% on China's Dalian Commodity Exchange

• Chinese market watchdogs have instructed iron ore market participants to carefully check and verify the information, warning that they will face severe punishments if they are found spreading false information to inflate prices

• Oil prices pulled back sharply as invasion fears recede

• The risk-on attitude and Russia-Ukraine de-escalation drove gold prices lower

Investors can breathe a sigh of relief as Russia-Ukraine developments take a step towards the right direction. Now we only have to worry about inflation and interest rates.

#1 Iron ore 

China’s investigation into domestic iron ore activities spooked prices on local exchanges such as the Dalian Commodity Exchange and Singapore Exchange. 

Will these actions weigh on iron ore prices in the short-to-medium term?

Fortescue (ASX: FMG) shares reversed sharply on Tuesday, down -5.1%.

Rio Tinto (ASX: RIO) fell -2.3%. While BHP (ASX: BHP) was down just -0.3%, buoyed by the release of its record half-year earnings. 

In contrast to China's controlling actions, they have announced intentions to boost infrastructure and real estate investment, and three weeks ago, unexpectedly cut borrowing costs for medium-term loans.

This would naturally lead to a surge in demand for commodities, notably iron ore.

#2 Travel 

Most US airlines rallied at least 5%, Airbnb surged 6%, closing at intraday highs and Booking.com added 3.5%. 

The Global Jets ETF is looking promising, rallying back up to 3-month highs overnight. Investors should keep an eye out as to whether or not it can rally above the trend line.

Source: TradingView

The encouraging overnight session could help snap the losing streak for local airlines and travel booking companies.

#3 Lithium 

The Global X Lithium & Battery Tech ETF bounced right on cue from $74. The ETF needs a follow through session to reclaim the 200-day moving average for a more positive outlook.

Source: TradingView

Most mid-large cap ASX lithium stocks have declined at least -10% in the past week. The overnight rebound could see some positive flow for local players.

#4 Gold 

“Soaring demand for gold in recent days has cooled after Russia confirmed the planned withdrawal of some troops; the first sign of de-escalation on the Ukrainian border amid warnings of an invasion,” said Oanda senior market analyst, Craig Erlam. 

“It peaked earlier today around US$1,880 but now finds itself testing US$1,850, a level that prior to the invasion warnings on Friday had been a notable level of resistance. Should gold erase its invasion premium, we could see it move back towards US$1,830 where it had stabilised around the middle of last week.” 

It looks like gold bulls might have to go back to what gold bulls do best - sit and wait.

#5 Energy

Oil prices have become fixated on breaking above the symbolic US$100 a barrel mark. The de-escalation on the Ukrainian border has reduced the risk of Russian sanctions, which could have put global oil supply at risk (Russia is the world’s second largest oil and gas producer). 

“The market is still extremely tight, which is why we’re seeing the prospect of an invasion drive up prices so much. In the absence of some unilateral action from Saudi Arabia, or a nuclear deal between the US and Iran, it may still not be too far away,” said Erlam. 

This could see a pullback for local energy names, notably:

• Woodside Petroleum (ASX: WPL)

• Beach Energy (ASX: BPT)

• Santos (ASX: STO)

ASX corporate actions occurring today:

• Ex-dividend: CBA, IAG, MAM, NEW

• Dividends paid: PGG 

• Issued shares: AOA, ART, CF1, CHR, KNM, LCL, LMG, LOT, MCT, MGF, PBH, PGD, SCN, SYA, SZL, TIE, TMK

Other things of interest 

• 12:30 pm AEDT: China January inflation 

• 6:00 pm AEDT: UK January inflation