Expanding Middle East war to loom over domestic economy
Events in the Middle East will cast a shadow over the Australian economy and the expansion of conflict will potentially impact inflation.
While there will be a lull in the volume of key data released this week, developments in the Middle East will be carefully monitored by the Central Bank for any signs of impact on domestic markets.
Central bank governor Michele Bullock warned on Tuesday that it would be too early to tell what the impact will be as supply shocks increase inflation pressures.
“We are very careful about the potential impact of inflation expectations,” he said.
“But at the same time, a prolonged impact on energy markets could have negative effects on global economic activity and put downward pressure on inflation.”
Oil prices rose in Australian capitals following US-Israeli attacks in the Middle East after Iran threatened to attack ships in the Strait of Hormuz, through which one fifth of the world’s oil supply passes.
While inflation remained steady at 3.8 percent, headline inflation, the Federal Reserve’s preferred measure, rose to 3.4 percent in January, still well above the bank’s 2 to 3 percent target.
This led Ms Bullock to say the next interest rate decision on March 17 would be “lively”, raising the prospect of a cascading rise in the cash rate.
New figures on consumer sentiment will be available next week after household spending figures rose slightly in January.
Westpac’s consumer confidence survey for March will be released on Tuesday, with economists forecasting a 1.1 per cent decline for the month.
The survey will cover the first month since the Central Bank increased the interest rate to 3.85 percent at its meeting in February.
February data showed signs that consumers are cutting back on their spending in preparation for interest rate hikes.
NAB’s business confidence report will also be published on Tuesday.
The previous report in February showed business confidence rising but conditions falling due to declines in profitability.
Meanwhile, Wall Street investors are uneasy as labor market disruptions and a 12 percent rise in prices fuel the market.
All three major indexes closed on Friday as a disappointing jobs report raised concerns about an economic cooling and the situation in the Middle East increased energy costs.
Dow Jones Industrial Average decreased by 0.95 percent to 47,501.55 points, S&P 500 index decreased by 1.33 percent to 6,740.00 points and Nasdaq Composite index decreased by 1.59 percent to 22,387.68 points.
Australian stock futures fell 135 points, or 1.52 percent, to 15,737.
The S&P/ASX200 fell 89.3 points on Friday, down 1 percent to 8,851 points, while the All Ordinaries lost 79.8 points, or 0.87 percent, to 9,085.1 points.
This was the top 200’s worst weekly performance since the beginning of April 2025.
Australia’s Associated Press is the beating heart of Australian news. AAP is Australia’s only independent national news channel and has been providing accurate, reliable and fast-paced news content to the media industry, government and corporate sector for 85 years. We inform Australia.
