The Overnight Report: Tragedy In Ukraine

This story features SANTOS LIMITED. For more info SHARE ANALYSIS: STO

By Greg Peel

The Dow fell 161 points or 0.9% while the S&P lost 1.2% to 1958 and the Nasdaq dropped 1.4%.

A Malaysian Airlines passenger jet was shot down last night over separatist-controlled Ukraine killing all 195 foreign nationals on board, including 27 Australians. Reports, unconfirmed, suggest the separatists mistook the aircraft for a military transport plane.

The ASX 200 appeared to have broken out of the gravitational pull of 5500 early in yesterday’s trade, punching through the previous GFC closing high of 5554 to peak at 5561 before gravity reasserted. Concerns regarding bank investigations drove financials into the red by day’s end, while a 1% gain in the materials sector was offset by a 0.8% fall in healthcare and a 1.8% fall in utilities.

It was a staggering start on Wall Street last night on a mixed bag of economic data and corporate earnings releases.

The Philadelphia Fed manufacturing index jumped to highest level in three years at 23.9, up from 17.8 in July. By contrast, June US housing starts fell 9.3% to a seasonally adjusted annual rate of 893,000 when economists had expected 1.02m. This represents the slowest pace since November 2012. Economists note, however, that this series does carry a very high margin for error and confidence interval.

Weak earnings results were posted by Sandisk (down 14%) and Mattel (down 7%) while Microsoft managed a 1% gain by announcing job cuts of 18,000 to simplify its operations.

By lunchtime the news from Ukraine hit the wires, changing the tenor of the market. There was rush to traditional safe havens and big jumps in oil prices as stock indices fell.

The US ten-year bond yield dropped 6 basis points to 2.48% as the world rushed into US Treasuries. Having come under selling pressure in the past two sessions, gold jumped US$20.70 to US$1319.30/oz. The US dollar index was down slightly at 80.51.

The VIX volatility index on the S&P 500 surged 32% to 14.4.

Brent crude rose US$1.16 to US$108.35/bbl and West Texas jumped US$2.13 to US$103.65/bbl on possible implications for global energy supply were tensions to escalate between Russia and the West.

The unfortunate coincidence in this tragedy is that the US had just announced a further step-up in sanctions against Russia, specifically targeting banks and companies close to the Kremlin, given the failure of Russia to resolve the conflict in the Ukraine. The EU also announced it would look at tightening sanctions by month’s end. This alone would have been enough to put upward pressure on oil prices.

Reports from Ukraine were unclear ahead of the close of the LME last night. News that another Chinese corporation, in this case a construction firm, is set to default on a bond payment put metal prices under early pressure but all closed at least slightly into the green, with aluminium up 1%.

LME traders also closely watched the release of the flash estimate of July eurozone CPI last night, which came in as expected at 0.5% headline and 0.8% core. As to whether the ECB will move to implement QE remains uncertain at this stage.

Spot iron ore fell US50c to US$97.50/t.

The Aussie is 0.2% lower at US$0.9346.

The SPI Overnight closed down 28 points or 0.5%.

Clearly markets moved into safe mode last night, ready to watch and act. While in itself this tragedy should not impact on global financial operations, the wider implications in the context of Cold War II are unknown.

Chinese property price data are out today while Santos ((STO)) will release its quarterly production report.
 

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