ASX to rally; Wall Street edges near all-time high; oil eases
STAN CHOE
As oil prices ease and hopes grow that the US and Iran may retry negotiations to end their war and avoid a worst-case scenario for the global economy, the Australian stock market is expected to recover at the open and follow global markets with gains.
Futures at 5.30am AEST point to a gain of 48 points, or 0.54 per cent, for the local stock market, which would contribute to a similar rise on Tuesday. The Australian dollar is trading around 71.28¢.
US stock markets traded near all-time highs overnight.
The S&P 500 index extended its gain by 1.1 percent from the previous day, erasing the last losses since the US and Israeli attacks on Iran in late February. It is just 0.2 percent below the record set in January and is on track for its ninth rise in the last 10 days.
The Dow Jones Industrial Average was up 315 points, or 0.7 percent, as of 3:12 p.m. Eastern time, and the Nasdaq composite was 1.8 percent higher.
It followed gains in stock markets around the world after Pakistan said it was trying to bring the United States and Iran together for more talks. Such expectations also helped reduce the price of oil, whose production and transportation have been disrupted by conflict.
Indices rose in much of Europe and Asia. South Korea’s Kospi index made two big gains, with an increase of 2.7 percent and Japan’s Nikkei 225 index with an increase of 2.4 percent.
If the talks are successful and the Iran war ends up being a temporary setback for the global economy, Due to the new normal where oil prices and inflation are very high, financial markets may turn their attention back to increasing profits for companies and growth for economies. These positive developments kept stock markets around the world largely in good shape before the war began.
Brent crude, the international standard, rose from around US$70 per barrel before the war in late February to more than US$119 when concerns about the war were at their height. Brent for June delivery fell 4.6 percent to $94.79 per barrel on Tuesday.
A barrel of US crude oil for May delivery fell 7.9 percent to $91.28.
Of course, hope has often quickly turned to doubt in financial markets since the start of the war, resulting in extreme and sudden returns. Much of the stress stems from the Strait of Hormuz, a narrow waterway that is the main route for crude oil produced in the Persian Gulf region to reach customers around the world. Blockages there kept oil off the global market, causing its price to rise.
This meant a higher burst of inflation. According to the latest data released on Tuesday, wholesale inflation in the USA rose to 4 percent in March from 3.4 percent in the previous month. That was actually better than the 4.6 percent rate economists expected, but it could also trickle down to U.S. households if businesses fully pass on the increases.
The impact is worldwide. Global inflation looks set to rise from 4.1 percent in 2025 to 4.4 percent this year, according to the International Monetary Fund, which previously thought inflation would slow to 3.8 percent.
The IMF on Tuesday also cut its global economic growth forecast to 3.1 percent this year from 3.3 percent in January.
On Wall Street, strong earnings reports and better expectations from several companies helped offset such concerns. Stock prices inherently tend to follow the path of corporate profits over the long term, and analysts predict S&P 500 companies will deliver solid growth of about 13 percent in the latest quarter, according to FactSet.
There’s such optimism about corporate America’s earnings power that analysts have even raised their estimates for the S&P 500’s profits in the first six months of the year since the end of February, according to Morgan Stanley.
BlackRock rose 3.3 percent and Citigroup rose 3.2 percent after financial companies reported stronger profits and revenue than analysts expected in the last quarter.
JPMorgan Chase also had a better-than-expected quarter, but its shares fell 0.5 percent after CEO Jamie Dimon said bank officials could not predict how “an increasingly complex set of risks” would play out given so much uncertainty.
Amazon rose 3.6 percent after it said it would acquire mobile satellite services company Globalstar for $90 per share in cash or $90 per Amazon share. Globalstar gained 9.7 percent in value.
Software companies also recovered on the second day, making up most of their sharp losses at the beginning of the year. This helped private loan companies recover. These companies have lent money to software companies and other companies that may be threatened by artificial intelligence, and have recently seen investors rush to withdraw their money.
Blue Owl Capital increased by 8.1 percent, reducing its loss for the year to 38.9 percent. Ares Management rose 5.5 percent and Apollo Global Management rose 4.6 percent.
In the bond market, Treasury bond yields declined as the decline in oil prices eased the pressure on inflation. The yield on the 10-year Treasury note fell to 4.25 percent from 4.30 percent at the end of Monday.
