Morning wrap: Wall Street sinks on fears of a Russian invasion of Ukraine, ASX set to fall

ASX Futures (SPI 200) imply the ASX will open 33 points lower, down -0.5%. 

US stocks fell sharply as increased tensions between Ukraine and Russia drove investors out of risky assets and sent oil prices flying.

Key Points

Stocks 

• The White House warned that the US expects Russia to invade Ukraine within days, and that Moscow has communicated those plans to its military 

• Geopolitical tensions triggered a broad-based selloff, where more risk oriented sectors such as tech and consumer discretionary bore the brunt of the selling 

• Defensive sectors such as utilities and consumer staples held up better than most

• The Nasdaq (tech) sliced through its 200-day moving average after a brief glimmer of hope last week. The index needs to bounce and avoid revising late January lows to stay out of trouble

• The Ukraine news also triggered a selloff in the bond market. The US 10-year Treasury yield, which hit 2% last week for the first time since 2019, closed at 1.92%

Economy

• After the Ukraine news, the likelihood of the US Federal Reserve raising interest rates by 50 bps is now 49.2% and a 50.8% for a 25 bps hike, according to CME’s FedWatch tool 

• Last Friday, the likelihood of a 50 bps hike was 89%

• Goldman Sachs still bumped up its rate hike expectations, forecasting 7 hikes by year-end

• The University of Michigan’s preliminary February consumer sentiment index fell to 61.7, the lowest reading since October 2011. Economists surveyed by The Wall Street Journal were expecting a reading of 67

• The main drag on consumer confidence was inflation and concerns about the decline in purchasing power

Commodities 

• Geopolitical tensions drove most commodities lower, including iron ore and copper 

• Iron ore fell -2.3% to US$150.15 a tonne 

• Oil prices surged to US$94 a barrel as retaliatory sanctions against Russia could impact global oil supplies. Russia is the world’s second largest oil and gas producer 

• All eyes on the next OPEC meeting on 2 March. Major OPEC producers such as Saudi Arabia and the United Arab Emirates could ease supply concerns if they agree to pump more oil 

• Gold has finally started to move as investors rotate into safe haven assets. Prices rallied to a 3-month high of US$1,858/oz

Investors should expect a tough open for the ASX on Monday. The question is whether or not the local sharemarket will stabilise, or will it turn into a complete blood bath?

#1 Travel

The US Global Jets ETF fell -4%, pulled lower by geopolitical tensions and surging oil prices. 

Major US airlines including American Airlines and United Airlines all closed around -4% lower. 

Investors should brace for turbulence for local travel names including:

• Qantas (ASX: QAN)

• Flight Centre (ASX: FLT)

• Corporate Travel Management (ASX: CTD)

#2 Tech

The Cloud and FinTech ETF both fell around -3.5% as investors continued to rotate out of risk assets. 

Block shares held up relatively well, down just -1%. This could be good news for local Block CDIs (ASX: SQ2).

While Affirm continued to free fall after its quarterly results on Thursday. The stock is down -38% in the last two trading sessions, closing at all-time lows last week. 

Local tech stocks will likely bear the brunt of the selling. Watch out for weakness across large cap names including:

• WiseTech Global (ASX: WTC)

• Xero (ASX: XRO)

#3 Energy

Oil prices rallied on reports that the US is expecting Russia to move forward with its Ukraine invasion. 

US energy stocks moved higher alongside oil prices, with Exxonmobil and ConocoPhillips up 2.5% and 1.7% respectively. 

“If PBS reporting is correct and troop movement happens, Brent crude won’t have any trouble rallying above the $100 level,” said Oanda senior market analyst, Ed Moya. 

“Oil prices will remain extremely volatile and sensitive to incremental updates regarding the Ukraine situation. The US expects the invasion to begin next week and if it does, oil could rally another 10%.” 

#4 Gold 

There's an army of frustrated gold investors, waiting for the yellow metal to get a move on.

"Gold is starting to get its groove back as some investors are seeking protection against an overly aggressive Fed tightening cycle that could threaten growth," said Moya. "Gold could rally above the $1900 level if troop movements occur.  Gold traders would not want to be short heading into the weekend."

Most large cap ASX gold miners are sitting around 2-year lows. The uptick in gold prices overnight will likely send positive flow for local gold stocks including:

• Newcrest Mining (ASX: NCM)

• Northern Star Resources (ASX: NST)

• Evolution Mining (ASX: EVN)

ASX corporate actions occurring today:

• Ex-dividend: DDR, QVE, SCG, SUN

• Dividends paid: AIQ, BLD, CLW, KKC, SPY

• Issued shares: ACR, AND, ANZ, ARR, BRK, CCG, CRS, DVP, FGR, GCR, HCH, ICI, ICL, LKO, NOR, ORN, PBX, PDI, QML, SZL, THR, UWL, WAF, WAM, XRO, XTC