Today's Markets: Stocks firm up, oil lower

Moscow claims of 'substantial progress' in peace talks see European stocks rise

March 14, 2022

European traders cling to crumbs of comfort from Russia-Ukraine talks
China locks down Shenzen - worrying Asian markets
Eyes turn to central bank action later this week

Oil lower, stocks firmer... on what? Moscow claims ‘substantial progress’ in peace talks while escalating conflict… but that is enough for traders grabbing onto any good headline. Russia is asking China for military aid and says Western shipments of weapons are legitimate targets. Russia says it can make debt repayments in rubles... default imminent, possibly on Wednesday. Just some weakness in crude filtering through to give risk some bid... or leftovers of Friday’s ‘peace trade’ rally on Putin’s statement about ‘positive shifts in talks with Ukraine. China is locking down again – Shenzhen is a major port and link to Hong Kong, so the Hang Seng is off almost 5 per cent. Foxconn (TPE: 2354) – Apple supplier – is shutting plants due to the outbreak of Covid in China. For now, market positioning is still very pessimistic, with the Vix holding above 30 though the term structure is looking healthier than it was a week ago. The rip for equities on Friday on those comments indicate how short the market is right now.

Beaten down areas like banks and travel and leisure led the way higher. The FTSE 100 lagged peers to trade flat - lower commodity prices + it’s not had the hit that other indices have taken this year - it’s down 3 per cent YTD vs the DAX’s 14 per cent decline this year. The DAX rose over 1 per cent in early trade, bullish crossover on our MACD indicator – was massively oversold, so conditions for further short squeeze are there, though I would caution that any jump is a bear market rally. I feel like we are in a sell strength kind of mode. Oil futures were lower, with Brent under $109, though off last week’s lows.

Companies

Ford steps up EV production in Europe

Ford Motor (US:F) said it will introduce seven new models by 2024 as part of its plans for an all-electric vehicle future.

The company will introduce three new passenger vehicles and four electric commercial vehicles within three years. It expects to sell more than 600,000 EVs in the region by 2026 – part of its global target of producing 2mn that year.

The company said it will invest $2bn in its Cologne plant to step up EV production to 1.2mn vehicles over six years, including a new, medium-sized crossover model.

Ford also signed an agreement with South Korea’s SK On Co and Turkey’s Koç Holding for the development of a commercial vehicle battery production site in Ankara.

Meanwhile, Ford Otosan – an existing joint venture with Koç Holding – is to take over a plant at Craiova in Romania.

It will produce an all-electric version of the Ford Puma compact crossover, as well as electric Transit Courier and Tourneo Courier commercial vehicles. MF

Rio Tinto offers $2.7bn to up its Oyu Tolgoi ownership stake

Mining giant Rio Tinto (RIO) has struggled for years with its minority partners on the Oyu Tolgoi mine in Mongolia, and has now offered $2.7bn (£2.1bn) to buy the 49 per cent of Turquoise Hill Resources (CN:TRQ) it does not own already. Rio chief executive Jakob Stausholm said the buyout would result in a “simpler and more efficient ownership and governance structure” for Oyu Tolgoi. The offer price of C$34 (£20) a share is a one-third premium to Turquoise Hill’s share price on Friday.

Turquoise Hill owns 66 per cent of the giant copper mine, which is in the midst of a major underground expansion. Rio already appoints much of the Canadian company’s board and all the top executives, to the chagrin of other shareholders. “The minority shareholders have borne the burden of financing the construction and have had to live with consequences of Rio's misconduct and should be reasonably compensated for such,” said the chief executive of Pentwater Capital Management in January, which owns just over 9 per cent of Turquoise Hill. The “misconduct” Matthew Halbower was referring to was Rio writing off $2.3bn in loans to the Mongolian government earlier this year. AH

Pan African goes north to Sudan

A tried and tested strategy for gold explorers is not to explore at all: just find where people are already mining gold and buy the rights to the land. Sudan is host to one of Africa’s largest gold mining industries despite not having many major mines, which are often financed by European or North American companies. The country does have many thousands of ‘artisanal’ miners, who often dig out gold by hand out in the desert.

Pan African Resources (PAF) has followed this model by securing exploration rights to 1,100 square kilometres of desert in northern Sudan. “Ten initial target areas have been identified for further exploration, based on the size, extent of artisanal workings, presence of alluvial workings and associated tailings,” the company said. Pan African raised the example of Orca Gold (CN:ORG), which has spent the last few years developing a plan for an open pit gold mine near the Egyptian border. Its board has just accepted a $155mn (£119mn) buyout. AH

S&P 500 e-mini futures up but death cross signal (50-day SMA crossing under 200-day) attracts attention...last time this happened the low was already in. For now the market remains indecisive in the 4,150-4,300 range. Speculative tech still getting wrecked – ARKK down more than 6 per cent to $55, -42 per cent YTD.

Fed this week is the other major focus for markets trained on Ukraine. Dots are expected to show policymakers think five rate hikes this year... could be more as inflation is not going away soon. Bank of England is also in action and again expected to raise rates.

Some very weak consumer sentiment numbers for the US didn’t help sentiment on Friday. University of Michigan consumer sentiment fell to a new post-2011 low, one-year consumer inflation expectations rose to 5.4 per cent, the highest since 1981 and highest ever number saying they expect their finances to worsen over the next 12 months. The Fed hiking when consumer sentiment this low is like 70s/80s - lead to back-to-back recessions. The 70s stagflation + oil shock similarities today are obvious enough.

Meanwhile, for all the talk about the end of dollar hegemony it’s the greenback that’s exhibiting the most haven-like status. DXY remains north of 99 as Treasury yields support with 10s back above 2 per cent. JPY is weaker, trading at a 5-year low as BoJ yield curve control means it can’t keep pace with USD.

Neil Wilson is the Chief Market Analyst at markets.com