US closes in on Iran deal, oil falls, ASX set for gains
Staff writers
Updated ,first published
Australia’s stock market fell on Tuesday after US and Israeli jets struck Iranian ships in the Strait of Hormuz and other targets, triggering doubts about an imminent end to the war just hours after President Donald Trump said peace talks with Tehran were progressing.
The S&P/ASX 200 index finished down 34.2 points, or 0.4 per cent, at 8657.80 points, with miners the only sector in the green. The decline came after the ASX rose 0.4 per cent on Monday as hopes of a deal to end the US-Iran war boosted investor confidence and dragged oil prices lower. The Australian dollar fell 0.1 percent to 71.67¢ in afternoon trade.
A US military spokesman said in a statement that the strikes, which included attacks on Iranian missile launch sites and mine-laying boats, were carried out “to protect our troops from threats posed by Iranian forces” but that the military “exercised restraint during the ongoing ceasefire.”
According to the news of Iran’s state television Nour News, the US-Israeli attack took place south of Larak Island in the Strait of Hormuz and many Iranian personnel were killed. Trump had previously said negotiations with Iran on a deal to extend the ceasefire and reopen the strait were “progressing well.”
“The market will be cautious given how previous hopes for a deal have been dashed,” said Abbas Keshvani, director of Asia macro strategy at RBC Capital Markets in Singapore.
While expectations that the ceasefire will last longer and the strait will be reopened are increasing, the renewed conflicts reveal the fragile nature of the current ceasefire. The critical waterway has been almost completely closed since the US and Israel attacked the Islamic Republic in late February; This attack triggered an energy shock and triggered a wave of global inflation.
Global stocks climbed to record highs and crude oil fell overnight after officials signaled that the United States and Iran were moving closer to a deal to reopen the strait and restore the flow of oil. However, Brent crude oil rose again after the latest conflict news, rising by 2.4 percent to $98.46 per barrel. West Texas oil was close to $92.
Despite the rise in oil prices, energy stocks finished the day with a decline as peace talks continued and continued their losses as of Monday. Oil and gas giant Woodside lost 0.1 percent, rival Santos lost 0.9 percent, refiner Ampol lost 0.7 percent and Viva Energy lost 0.9 percent. Coal miners Yancoal and Whitehaven lost 3.3 percent and 3.1 percent respectively.
Secretary of State Marco Rubio told reporters in India on Tuesday that negotiations would still “take a few days” as both sides discussed language in the initial document.
Financial stocks also fell, weighing on the broader market. CBA fell 0.2 per cent, Westpac fell 0.4 per cent, National Australia Bank fell 0.8 per cent and ANZ Bank fell 0.3 per cent.
Exchange operator ASX Ltd fell 13.3 per cent after signaling it would increase capital spending by up to $200 million in the new financial year to improve critical market infrastructure. The spending shock comes as the company struggles to regain the trust of regulators and stakeholders after years of technical problems.
Flight Center shares tumbled 3.5 per cent after the travel agency said in a trading update that its early fourth-quarter results were “heavily impacted” by Middle East tensions, with trip cancellations and refunds to customers leading to a $10 million profit in April, with greater damage expected for the generally stronger months of May and June.
As hopes for a deal to end the war remain, utilities and basic consumer goods have also weakened, leading some investors to withdraw from defense sectors. Energy companies Origin Energy and AGL fell 2.3 per cent and 2.8 per cent respectively, while supermarket giants Woolworths and Coles fell 0.8 per cent and 0.6 per cent. Telstra shares lost 0.9 percent.
Bucking the trend, Kogan shares rose 18.6 per cent after the online retailer said earnings rose 25.4 per cent to $26.9 million in the 10 months to April 30 as the Mighty Ape business turned around and Kogan.com showed strong profitability.
Broad market losses on the ASX were driven by futures contracts on the S&P 500 rising 0.6 per cent, while those on the Nasdaq 100 rose 0.9 per cent. Wall Street was closed overnight for the Memorial Day holiday.
The hope of ending the war, which deeply affected the global economy, mobilized world markets overnight. The MSCI All Country World Index, the broadest gauge of global equities, rose 0.5 percent to its highest closing level of all time. Europe’s benchmark Stoxx 600 rose for a sixth consecutive session, closing at the highest level since the start of the war.
“Clearly a FOMO factor is contributing to the unexpectedly strong global risk appetite: Investors don’t want to be left out if the Iran war ends as the AI theme continues to lift the stock market,” said SEB strategist Dana Malas.
Meanwhile, traders are also focused on inflation. The fact that the Fed has fully priced in a rate hike by the end of the year underscores expectations that new US central bank governor Kevin Warsh will need to act quickly. Later this week, US Personal Consumption Expenditures data and inflation readings across Europe will offer clues about the direction of price pressures and interest rates.
Warsh, who has promised the biggest shakeup of the U.S. central bank in decades, was sworn into office on Friday. Trump emphasized that he wanted Warsh to run the Fed independently and tried to downplay investors’ concerns that he would pressure the new central bank governor on policy decisions.
According to BlackRock, the Fed may have sufficient reason to justify cutting interest rates rather than raising them under new chairman Warsh.
Elsewhere, China has launched an unprecedented campaign against illegal cross-border trading to stem capital outflows, threatening heavy fines against popular brokers and ordering the liquidation of non-compliant accounts within two years.
AP via Bloomberg
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