Asian Open: Ceasefire talks between Russia and Ukraine bears no fruit

Monday US cash market close:

• The Dow Jones Industrial fell -166.15 points (-0.49%) to close at 33,892.60
• The S&P 500 index rose -10.71 points (2.51%) to close at 34,058.75
• The Nasdaq 100 index rose 48.646 points (0.34%) to close at 14,237.81

Asian futures:

• Australia's ASX 200 futures are up 21 points (0.3%), the cash market is currently estimated to open at 7,070.10
• Japan's Nikkei 225 futures are up 80 points (0.3%), the cash market is currently estimated to open at 26,606.82
• Hong Kong's Hang Seng futures are down -10 points (-0.04%), the cash market is currently estimated to open at 22,703.02
• China's A50 Index futures are up 75 points (0.51%), the cash market is currently estimated to open at 14,808.32

The fighting across Ukraine’s cities continued leading into, during and beyond the ceasefire talks, which ended with no progress – just as Ukraine had expected. Ukraine were demanding an immediate ceasefire and withdrawal of Russian troops which was always going to be a long shot, although there have been murmurs of another meeting which are yet to be confirmed. And the International Criminal Court (ICC) has announced that it will launch an investigation into war crimes or crimes against humanity, despite Ukraine not being a member. Separately, Ukraine has signed an application for to enter the EU which is being seen as a symbolic move to show European intent, but unlikely to create a fast route into NATO.

Money markets lower expectations of aggressive Fed hikes

The S&P 500 recouped most of its losses sustained after gapping lower over the weekend, and the Nasdaq managed to close to a 6-day high. We wouldn’t explain the moves as risk-on as such, but current levels of volatility amidst heightened geopolitical tensions have seen money markets lower expectations of such an aggressive Fed hike cycle. A 50-bps hike now sits at just 6.6% probability, down from over 30% just over a week ago, and there are now more realistic expectations of four hikes this year, down from six just two weeks ago. Ultimately, this is good for stocks which has allowed Wall Street to shake off losses, but neither is it a good enough reason to expect them to break to new highs.

ASX 200:

The ASX 200 closed just shy of 7050 yesterday but at the high of the day. A positive lead form Wall Street and likely dovish RBA meeting today could potentially provide its next leg higher to 7100, with 7130 and 7145 also making viable targets this week should sentiment allow. Our bias remains bullish above last week’s low of 6959 but we could also use 7000 to fine tune risk parameters.

ASX 200: 7049.1 (0.73%), 28 February 2022

• Materials (2.99%) was the strongest sector and Information Technology (-0.58%) was the weakest
• 8 out of the 11 sectors closed higher
• 3 out of the 11 sectors closed lower
• 3 out of the 11 sectors outperformed the index
• 116 (58.00%) stocks advanced, 67 (33.50%) stocks declined

Outperformers:

• +7.95% - Johns Lyng Group Ltd (JLG.AX)
• +6.9% - Lynas Rare Earths Ltd (LYC.AX)
• +6.25% - BlueScope Steel Ltd (BSL.AX)

Underperformers:

• -4.82% - Telix Pharmaceuticals Ltd (TLX.AX)
• -4.65% - Credit Corp Group Ltd (CCP.AX)
• -4.29% - Sandfire Resources Ltd (SFR.AX)

USD weakens on lowered Fed hike expectations

The Swiss franc and Japanese yen were the strongest major currencies which suggests a risk-off session for forex, yet we wouldn’t also expect to see AUD and NZD rise alongside with them under such circumstances. Lower expectations of an aggressive hike cycle from the Fed weighed on the US dollar which was the second weakest FX major, behind the euro.

AUD/USD closed to its highest level in five weeks ahead of today’s RBA meeting. RBA are the most reserved central bank at the best of time and we doubt recent geopolitical events would make them any less dovish so there is little room for an element of surprise today. Next upside target for AUD is 7300 near its 200-day eMA. GBP/AUD has continued to move south after pulling towards the 1.8646/74 resistance zone highlighted in yesterday’s report and creating a swing high. With current levels of volatility it could be just 1-2 trading days away from reaching the H&S top target around 1.8360.

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