Morning wrap: Wall Street slides as oil prices spike, ASX set to tumble

ASX Futures (SPI 200) imply the ASX will open 49 points lower, down -0.7%.

Wall Street hit the sell button as the Russia-Ukraine crisis intensifies. Russia has threatened high-precision strikes as military vehicles begin to make their way to Kyiv, the Ukrainian capital.

This triggered a spike in commodity prices and a broad-based selloff for Wall Street. All US sectors finished lower, except energy.

Stocks

• US stocks experienced a broad-based selloff led by banks, materials and technology sectors

• The market exhibited a classic flight to safety where major indices closed at session lows, bond prices rallied and gold spiked

• The US 2-year treasury yield plunged to 1.32%, down from last month’s high of 1.64%

• The expectation of a 50 bps hike from the US Federal Reserve has now evaporated. CME’s FedWatch tool is now showing a 94% likelihood of a traditional 25 bps hike in March

• Bank stocks fell the most as lower bond yields could continue to see weak net interest margins for the financial sector 

• 63% of US stocks declined 

• 66% of US stocks trade below their 200-day moving averages (63% yesterday, flat compared to last week)

Economy

• A private gauge measuring activity in China’s manufacturing sector bounced back into expansionary territory in February after dipping into contraction in January 

• The Caixin Manufacturing PMI rose to 50.4 in February compared to 49.1 last month. A reading below 50 indicates activity contraction

• Federal Reserve Chair Jerome Powell is due for his semiannual hearing at the House Committee on Financial Services on Thursday

Commodities 

• Commodities experienced a broad-based rally amid tight supplies and the risk of Russian exports being cut off from the rest of the world

#1 Energy

Energy was the only US sector to eke out some gains as Brent crude spiked 8.5% to US$105 a barrel. 

Brent Crude Oil, TradingView

“Energy traders shrugged off the EIA announcement that 60-million barrels of crude will be released.  Crude prices can’t stop going higher as a very tight oil market will likely see further risk to supplies as the War in Ukraine unfolds,” said Oanda senior market analyst, Ed Moya. 

“If this trajectory in oil prices continues economic growth prospects will take a big hit and that could lead to a significant deterioration with the medium-term crude demand outlook.”

See a list of energy stocks here. 

#2 Nickel

Russia is the world’s third largest nickel producer with the fourth largest reserves. The war on Ukraine is bullish for nickel as it could create supply shortages as demand continues to pick up. 

The iPath Nickel Subindex is what the morning wrap uses to track nickel prices. The ETF tracks nickel futures and hit an all-time high overnight.

iPath Bloomberg Nickel Subindex, TradingView

It will be interesting to see whether or not the supply concern can buoy nickel stocks. Or will the weak market outweigh and drag the stocks lower?

See a list of nickel stocks here. 

#3 Aluminium

Aluminium prices are also running hot due to potential risks coming out of Russia. 

South 32 (ASX: S32) is arguably the go-to aluminium name for most investors. The stock has hit several fresh all-time highs in the past month, up 17% year-to-date. 

See a list of aluminium stocks here. 

#4 Lithium

The risk-off attitude took a toll on lithium stocks overnight. 

The Rare Earths/Strategic Metals and Lithium/Battery Tech ETFs both fell more than -3%. 

This could take some heat out of local names.

See a list of lithium stocks here.

#5 Banks 

Major US banks fell as much as tech stocks. Notable losers include:

• Bank of America -3.9%

• JP Morgan -3.8%

• Goldman Sachs -3.8%

Australian government bond yields have also sold off in recent days. This could drive some negative flow to local bank names.

#6 Travel

The US Global Jets ETF fell the most among the list of ETFs we track, down -5.1%.

The Jets ETF invests mostly in US airlines with smaller positions in global airlines including Qantas (ASX: QAN). Its a useful indicator for how the industry is tracking and what to expect in the upcoming session.

Factors weighing on the airlines might include:

• Surging oil prices

• Russia closing its airspace for 36 countries

ASX corporate actions occurring today:

• Ex-dividend: ADA, AEF, ASH, BFG, BVS, CAF, CGO, GQG, LNK, MFD, OML, PCG, PTM, QIP, RMC, SYM, TIP, TLS, TWE

• Dividends paid: None today

• Listing: OM1

• Issued shares: ABP, AII, ALO, ANZ, ARL, ATC, BKT, OM1, WCN, ZLD

Upcoming economic news:

• Australia December quarter GDP growth rate at 11:30 am AEDT