Hotter than expected US data fuels rate concerns: Oil price becoming a geopolitical football

 

Stocks fell Monday on fears that the Federal Reserve may continue tightening until it steers the economy into a recession.

A hotter-than-expected reading of the November ISM Services report further fueled concerns that the Fed will continue hiking after the index topped Dow Jones’ estimates and increased from October.

The Dow Jones Industrial Average fell 1.4 per cent, while the S&P 500 and Nasdaq Composite slid by 1.8 per cent and nearly 2 per cent, respectively.

Tesla shares shed nearly 6.5 per cent on reports of an output cut at its Shanghai factory, while tech stocks Microsoft, Amazon and Netflix all declined on growth concerns. Salesforce tumbled almost 7.5 per cent as it announced the departure of Slack’s CEO.

Macao-linked casino stocks gained on hopes of easing Covid-19 restrictions.

While the war in Ukraine grinds on, Western countries have been debating how to curb Russia’s oil revenue without causing massive disruptions to energy markets. They think they landed on an innovative solution: Starting last Friday the G7 and Australia will apply a price cap of $60/barrel on Russian oil. This way It keeps Russian oil flowing to countries that still buy it. And Russia is forced to sell its oil for cheaper than it wants to, which could dent Putin’s ability to fund his war in Ukraine. Sales of oil and gas are estimated to account for 42 per cent of Russia’s total revenue this year.

And the mechanism for enforcement? Well Western countries dominate the maritime industry that Russia relies on to ship its oil. So, the G-7 is telling Western companies that they can’t insure, finance, or ship Russian oil that’s more than $60/barrel.

The expectation is that oil price volatility could be even more volatile in the weeks ahead as traders watch for signs that Russia will retaliate. The oil price fell 2.8 per cent overnight.

And in further commodity news US natural gas prices tumbled more than 10 per cent as warm weather and another delay to the restart of the Freeport LNG terminal in Texas hit expectations for fuel demand.

All sectors closed lower, with energy and consumer discretionary the big drags.

Worst performing thematics included social media, lithium, hydrogen & Tesla related companies.
 
Futures

The SPI futures are pointing to a 0.6 per cent fall.

Currency

One Australian dollar at 8:10 AM has weakened compared to the US dollar on Monday buying 66.93 US cents (Mon: 67.77 US cents).

Commodities

Iron ore futures are pointing to a 0.9 per cent fall.
Gold fell 1.6 per cent. Silver dropped 3.6 per cent. Copper lost 1.7 per cent and oil fell 3.2 per cent.

Figures around the globe

Across the Atlantic, European markets closed mixed. Paris lost 0.7 per cent, Frankfurt fell 0.6 per cent and London’s FTSE closed 0.2 per cent higher.

In Asian markets, Tokyo’s Nikkei added 0.2 per cent, Hong Kong’s Hang Seng jumped 4.5 per cent and China’s Shanghai Composite closed 1.8 per cent higher.

Yesterday, the Australian sharemarket added 0.3 per cent to close at 7326.

Ex-dividends

Dalrymple Bay (ASX:DBI) is paying 5.025 cents unfranked

Sources: Bloomberg, FactSet, IRESS, TradingView, UBS, Bourse Data, Trading Economics, CoinMarketCap.

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