Australian stocks are trading moderately higher as news over the weekend of tougher Western sanctions on Russia dampens the spread of a global market rally on Friday.
The benchmark ASX 200 rallied sharply in the afternoon to close 0.7% higher at 7,049 and the broader All Ordinaries index also rose 0.7% to 7,323.
That was a far cry from following the huge rally seen overseas after the ASX closed on Friday.
Wall Street’s benchmark S&P 500 index rose 2.2% on Friday, and the rally in most European markets was well over 3%.
But this strong rebound from Thursday’s heavy losses came before the US, UK, EU and Canada announced that some Russian banks would be cut off from the main global financial transaction service SWIFT, and that the Russian central bank would be denied access to a large part of its foreign exchange reserves.
“Risk rallied strongly on Friday,” noted NAB’s head of FX strategy and markets Ray Attrill.
Rabobank strategist Michael Every said it was clear the outcome of Russia’s invasion of Ukraine was heading for worst-case scenarios for the global economy and financial markets, with some banks pulling out of Russian transactions in the event of new sanctions.
“Russia is on the same side as North Korea, Venezuela and Iran,” he wrote in his latest memo on the crisis.
“The more than 620 billion dollars in foreign [foreign exchange] reserves held by the Central Bank of Russia (CBR) are also sanctioned – meaning that apart from gold and partially convertible CNY [Chinese yuan] it holds, the vast majority are now unavailable. Even gold is not liquid if no one can use the FX in exchange.
“There will be a complete collapse of the ruble today, with a 20% drop at the open and nothing to support it from then on.
A US dollar could buy 100 rubles in Asian currency markets today, down from less than 84 on Friday, but reports indicate exchange rates are even higher for those trying to buy US dollars in Russia.
IG Markets analyst Kyle Rodda said traders were also concerned about the financial implications outside of Russia.
“A protracted civil war triggered by regime change in Ukraine could plunge Europe into recession,” he warned.
“At the same time, supply disruptions, particularly in energy and food, could exacerbate inflationary pressures.”
The Australian dollar was a bit weaker at 71.76 US cents around 4:30 p.m. AEDT.
Brent crude recovered from Friday’s decline, rebounding 5.3% to US$103.15 a barrel.
Gold was also a little firmer at US$1,906 an ounce.
Mining Leads Earnings
Mining stocks led the gains, up 2.7%.
In the mining sector, mineral sands miner Illuka Resources (+5.3pc), rare earths producer Lynas (+6.9pc) and Gold Road Resources (+5.5pc) were among the strongest winners.
Diversified mining giants BHP and Rio Tinto rose 4.4% and 3.2% respectively.
Gains in the mining sector would have been even bigger, but Fortescue Metals traded ex-dividend today, meaning those who bought the stock missed its final payout to shareholders. It decreased by 2.4% as a result.
Energy stocks continued their recent ascent, with Woodside Petroleum up 2.1%.
Australian grain-handling giant Graincorp jumped 5% to $8.40 on fears that Russia’s invasion of Ukraine could be protracted and disrupt Ukraine’s upcoming grain growing season, driving higher Australian shipping demand and prices.
Outside of commodities, Blackmores (+9.8pc), Clinuvel Pharmaceuticals (+8.1pc), BlueScope Steel (+6.3pc) and Appen (+5.4pc) led the gains on the ASX 200.
Insurance companies were sold heavily as massive flood damage in southeast Queensland and northern New South Wales became apparent.
Insurance Australia Group fell 4%, while Suncorp fell 3.2% after revealing its flood liability was likely capped at $75 million due to reinsurance policies.
Elsewhere, losses were driven by a combination of technology, financials and consumer cyclicals.
Tech company Life360 continued its recent descent, losing 8.9% to $5.20, with Tyro Payments down 5.5%, Telix Pharmaceuticals down 4.8% and Flight Center down 3.4%. %.
Zip announces acquisition of Sezzle
Buy now, pay later Zip and Sezzle companies have announced a merger under the laws of the US state of Delaware.
The deal will see Sezzle shareholders receive 0.98 Zip shares for every Sezzle share they currently hold.
At the two companies’ trading prices on the ASX at the close of trading last Friday, the deal values Sezzle at $491 million and represents a 22% premium to its last closing price.
Upon closing of the deal and a $199 million fundraising by Zip, its shareholders will own approximately 78% of the combined company.
Zip said the cash from the stock sale “will help Zip strengthen its balance sheet and position Zip for sustainable growth by providing more capital to execute the potential synergies of the proposed transaction.”
Both companies are still on hiatus, but Zip’s share price is down nearly 50% so far this year, while Sezzle’s is down more than 40%.