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Episode details

Will McVeagh
Good morning. It’s Monday the 14th of March and I’m well from Milford. The Russian invasion of Ukraine continued to be a focus for global financial markets last week. Commodities against or large most was crude oil soaring to over 130 US dollars a barrel on the back of the US and UK moving to Ben Russian oil and gas imports, before settling back in the week. $113 a barrel. Safe Haven gold also broke higher heading 2050 US dollars an ounce during the week trading 18 month high. Perhaps most remarkable move, however, was a nickel. We’re on Tuesday, the price doubled in a matter of hours causing chaos as brokers and traders struggled to pay margin calls driven by the extraordinary move. The London Metal Exchange eventually decided to cancel all of Tuesday’s trades. And Nicole didn’t try it again for the rest of the week as brokers and traders attempt to shore up positions in margin requirements. equity market volatility continued to persist at higher levels causing large swings throughout the week. One factor driving this was the extreme degreasing of hedge funds. The seas hedge funds, sell their long positions and cover or buy stocks at their short to reduce exposure. Because of the aggressive nature of hedge funds. This can cause sharp moves in markets. Goldman Sachs estimates it in dollar terms the de grossing activity in US single stocks over the past week was the largest over the past year, and the fifth largest over the past five years. US inflation hit a new 40 year high in February, with headline CPI of 7.9% year on year for 7.5%. In the previous month. Rent was a standout rising 60 basis points month on month and continuing to accelerate. While food and energy were both also extremely strong at 7.9% and 26%, respectively, year on year. It’s also worth noting that much of the recent spike in energy prices due to the Ukraine crisis would not be reflected in this data release. So it is likely we could see another record print in the next month’s data. The European Central Bank surprised markets by accelerating plans to wind down stimulus, signaling that it is more concerned about inflation then the impact of the Ukrainian conflict on growth. Officials ramped up their 2022 inflation forecasts to 5.1% from 3.2%. Previously, the bank was slow bond buying to 30 billion euros in May 20 billion in June and may hold the program altogether in the third quarter. It was however cagey about any subsequent rate hikes but money markets are now betting on a 25 basis point increase in October instead of December. RBA governor Lowe spoke this week on recent economic developments focusing on the current inflation and employment outlook for Australia. Lowe noted that while very low unemployment has surprised the central bank falling to the lowest levels in the decade. They expect that this will continue lower still, the bank central forecast is now for unemployment to fall below 4% And stay the end to 2023. On inflation low noted that while Australia’s headline inflation rate of 3.5% so it’s right at the top of the 10 year range, it is still far lower than offshore developed markets. He also noted that the large price jumps in energy goods and wages. markets such as the US and the UK have not been seen domestically. However, most interest was on his closing comments, noting that it is plausible that the cash rate will be increased later this year. This is a change from his previous retort that the RBA would not hike rates until 2023 and signals a softening in his dovish stance. Turning to stop news, aristocrat leisure provided an update in an investor roundtable held last week addressing the concerns around its exposure to Ukraine and Russia. aristocrat have 1000 employees in Ukraine and have been able to relocate two thirds of these to safer parts of Ukraine or Poland. Beyond this, they highlighted they expected minimal impact earnings and the digital development pipeline. The letter was a big concern of the markets and we therefore saw a relief rally of 4%. On the day AGL energy received a revised budget of $8.25. A share last week from the consortium led by alessian co founder Mike cannon Brooks, while an increase from the initial bid of $7.50. To take the company private AGL rejected the improved offer, stating that the proposal continues to ignore the value that AGL shareholders head through the proposed merger. It appears this bid was fairly opportunistic being drafted before the large recent moves in energy prices. Cannon Brooks tweeted to say that he would now walk away from the proposed takeout Nickel Mines was caught up in the commodity route during the week when it emerged that the largest shareholder may have to potentially sell down the 20% stake which saw the stock in down 25% for the week. The stake was owned by Chinese nickel dime Shang Han, which was reported to have suffered an $8 billion trading loss on short nickel positions causing large margin calls from the London metals exchange. This caused speculation amongst nickel mining investors that shenghang may need to sell this stake to fund these calls. The coal mines released a statement saying that Shang Han has given them assurances they’re not planning to sell, however the stood little to a lay man Khatri is in the week ahead, markets will focus on the Federal Open Markets Committee rate decision early Thursday morning. It is expected that the committee will increase interest rates however there is debate as to whether this will be 25 or 50 basis points. Post the strong CPI print last week, it may give some support 50 basis points however, most expect that the Fed may be patient considering the uncertainty created from the Ukraine conflict. They will also be focused on the forward rate track few of the hikes and any comments chair Powell may make about impacts from the Ukraine crisis. The market currently has 1.6% of hikes priced for 2022, which would see the fed fund rate at 1.85% by year end. The February Australian employment data will be released on Thursday. This will be a good measure to see how the labor market is tracking after the Omicron effective January data. Analysts expect the unemployment rate to fall to 4.1% from 4.2%. Thanks for listening. We’ll see you next week.

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