What’s happening in Iran,and when will it end? It’s all that matters to markets right now.BloombergIt was another day of war seesawing for investors as the conflict in the Middle East has upended global markets and triggered concern about a simultaneous spike in inflation and a slowdown in economic growth. The war has effectively shut down the strait,a crucial route for energy supplies,boosting oil prices and weighing on sharemarkets.
The ASX recovered from a fall at the open as oil prices stopped climbing following theJournal report. West Texas Intermediate steadied about $US103 a barrel and Brent,the international standard,edged down slightly to $US107 a barrel. They both had jumped earlier after another Iranian attack on an oil tanker in the Persian Gulf.
Trump and his aides assessed that a mission to reopen the strait would push the conflict beyond his timeline of four to six weeks,and it might be better to wind down hostilities while pressuring Tehran diplomatically to resume the free flow of trade,theJournal reported,citing unidentified officials in his administration.
Restoring flows from the Middle East would benefit major importers in Asia such as India and China and it would help alleviate concerns about a slowdown in global growth.
“The short-term view is that an end to the war would be a welcome development,” said Tim Waterer,a chief market analyst at KCM Trade. “But if the Strait of Hormuz remains closed,this leaves global energy markets susceptible to further supply disruptions.”
Trump has regularly vacillated between saying an end to the war is near and warning he’s prepared to ramp up military operations. On Monday,he said the US would blow up power plants,oil facilities and “possibly” desalination infrastructure if Iran doesn’t re-open Hormuz.
“The market has been treated to a further barrage of geopolitical headline risk,and this will only remain the case for the days and possibly weeks ahead,” wrote Chris Weston,head of research at Pepperstone Group in Melbourne. “There remains increased scepticism around a near-term ceasefire.”
In cautious trading,materials stocks were driven higher by gold miners. Northern Star (up 4.4 per cent),Evolution Mining (up 0.8 per cent) and Newmont (up 2.2 per cent) all traded higher after gold prices jumped as much as 1.8 per cent. The iron ore giants ended up mixed. BHP was down 0.1 per cent,Fortescue was down 1.2 per cent and Rio Tinto was up 0.4 per cent.
Stocks dependent on oil supplies also lifted. Airlines Qantas and Virgin Australia were up 1.1 per cent and 4.4 per cent,and travel agency Flight Centre gained 1.6 per cent.
The ASX’s gains were further underpinned by the financial sector,which accounts for about a third of the market. CBA slipped 0.6 per cent,Westpac climbed 1 per cent,National Australia Bank added 0.5 per cent and ANZ Bank edged up 0.2 per cent.
Cyclical industries such as consumer discretionary and tech stocks also ticked higher amid the renewed optimism. Kitchen appliances maker Breville rose 1.5 per cent;Rebel Sports owner Super Retail Group added 2.1 per cent;and Eagers Automotive,which sells China’s BYD electric cars in Australia,climbed 3.5 per cent. Online mattress and furniture seller Koala jumped 11.8 per cent on its trading debut. Software giants WiseTech,Xero and Technology One rallied 4.1 per cent,6.6 per cent and 1.4 per cent respectively as bargain-hunters waded in.
On the flipside,energy stocks turned south with the moderation in oil prices. Oil and gas giants Woodside and Santos were down 0.5 per cent and 1.1 per cent respectively and refiner Ampol slipped 0.9 per cent. Fossil fuel producers Yancoal and Whitehaven Coal,which stand to benefit in an energy crunch,slid 4.7 per cent and 6 per cent respectively.
The Australian dollar was at US68.49¢ late afternoon as investors had also taken in the latest RBA minutes. The central bank said it was impossible to confidently predict the path for policy after it had raised interest rates twice this year,as the oil price shock from the war fanned inflation risks.
The recovery on the local market came after futures contracts for the S&P 500 Index had erased declines to climb 0.8 per cent following the Iran war report. The S&P 500 Index had dropped 0.4 per cent overnight,and closed at its lowest level since August. It now stands less than 1 per cent away from a correction amid uncertainty about when the war with Iran could end.
The Dow Jones added 0.1 per cent and the Nasdaq composite fell 0.8 per cent. Both were more than 10 per cent below their records last week,a steep enough fall that investors call it a “correction”.
”The tone remains one step forward,five steps back on any off-ramp,” said Rebecca Babin,a senior energy trader at CIBC Private Wealth Group. “With 10 million to 12 million barrels per day still effectively missing from the market,buffers are fading and talking crude lower is becoming less effective.”
The latest report on Trump’s plans echoed last week’s pattern,where he would tout progress being made and offer some optimism for the market,only for doubts to rise quickly afterwards about whether the war can end soon.
All the back and forth has some investors saying they’re giving Trump’s utterances less weight than before. Investors also assessed mixed messaging from US Federal Reserve chair Jerome Powell. The US central bank chief said the Fed would reach its 2 per cent inflation target,while stating it has little control over supply shocks such as the surge in energy prices from the turmoil in the Middle East. Policymakers might need to respond to fallout from the war,though not yet,he said.