Asian Open: Wall Street rallies as troops head back to the barracks

Tuesday US cash market close:

• The Dow Jones Industrial rose 422.67 points (1.22%) to close at 34,988.84
• The S&P 500 index rose 69.4 points (1.58%) to close at 4,471.07
• The Nasdaq 100 index rose 352.221 points (2.47%) to close at 14,620.82

Asian futures:

• Australia's ASX 200 futures are up 71 points (1%), the cash market is currently estimated to open at 7,277.90
• Japan's Nikkei 225 futures are up 600 points (2.24%), the cash market is currently estimated to open at 27,465.19
• Hong Kong's Hang Seng futures are up 153 points (0.62%), the cash market is currently estimated to open at 24,508.71
• China's A50 Index futures are up 20 points (0.13%), the cash market is currently estimated to open at 15,027.70

Appetite for risk is higher on new that (some) of Putin’s troops are retreating from Ukraine’s borders. It remains too early to tell whether this is simply a tease from Putin but it was enough to send the main US indices higher. Tech stocks led the advance with the Nasdaq 1000 rising 2.5%, the S&P 500 was up around 1.6% and the Dow gained 1.2%.

Divergent 'forces' for the ASX

In the grand scheme of things, yesterday’s -0.5% loss on the ASX 200 was relatively minor against the backdrop off selling pressures elsewhere. It has outperformed Wall Street since the January low, hasn’t seen a single daily loss of over -1% during its rally and the only sector to post a loss over that period is the Health Care sector. Now that some of Putin’s troops are heading back to the barracks and Wall Street trades higher, it leaves potential for some green today. Although we also need to factor in the potential further losses on Iron Ore, as traders scrambled for the exit on fears of another China crackdown.

Energy stocks could also get knocked further from their perch as, heavens forbid, oil prices were lower overnight. Yet with WTI looking comfortable above $90 then don’t expect pump prices to hand us a favour any time soon.

ASX 200: Market internals

ASX 200: 7206.9 (-0.51%), 14 February 2022

• Energy (-3.1%) was the strongest sector and Healthcare (-0.59%) was the weakest
• 6 out of the 11 sectors closed higher
• 5 out of the 11 sectors closed lower
• 6 out of the 11 sectors outperformed the index
• 64 (32.00%) stocks advanced, 121 (60.50%) stocks declined

Outperformers:

• +13.7% - Sims Ltd (SGM.AX)
• +6.16% - Brambles Ltd (BXB.AX)
• +6.08% - Seek Ltd (SEK.AX)

Underperformers:

• -10.46% - Beach Energy Ltd (BPT.AX)
• -9.88% - AVZ Minerals Ltd (AVZ.AX)
• -9.58% - Chalice Mining Ltd (CHN.AX)

Producer prices remain in the hot seat

US producer prices rose 9.7% y/y, far exceeding the 9.1 expected. So much for inflationary forces cooling off with CPI also beating expectations last week. Even core PPI (which excludes food and energy) rose 0.8% up from 0.5%. Yet that did not prevent the US dollar falling on the day as traders focussed on the upside of Russia’s retreat over the prospect of Fed hikes.

Safe-haven currencies lose some of their appeal

EUR and NZD were the strongest majors as improved sentiment saw the US dollar hand back some of its safe-haven gains. AUD took third place and may have performed better were it not for lower iron ore prices yesterday. CHF and JPY were the weakest majors as safe havens lost their appeal, yet it should be noted that volatility on these pairs were not exceptionally high which suggests markets are not fully pricing in a victory over Russia.

NZD/CAD has turned higher against yesterday’s bias, thanks to lower oil prices. Yet as long as prices remain beneath last week’s high then we still favour it to move to Januarys low.

AUD/JPY is one to watch should appetite for risk improve

Whilst it remains touch and go as to whether tensions between Russian and Ukraine truly are receding, AUD/JPY is one to watch should equities rally today as it is closely linked to appetite for risk. It closed back above its 200-day average yesterday and found support at 82.0, a level which has proven to be pivotal since March 2021. It is coiling up near yesterday’s highs into a tight triangle, and that can be indicative of pending volatility. And as we’re hopeful sentiment can improve in Asia today we are on guard for an upside breakout, at least over the near-term.

A solid break above yesterday’s high puts 83.0 into focus for bulls, and if volatility excites enough to the upside the highs around 83.20 sit near the daily R2 pivot point, making it another viable target for bulls.

Bearish outside day on gold

Gold was another market to lose its safe-haven appeal on Russian headlines. This is an outcome we discussed in yesterday’s video but admit we didn’t think it would happen so soon. A minor false break above 1877 warns of a fakeout but we’d need to see a daily close below 1850 before getting too excited of a retracement.

Up Next (Times in AEDT)

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