Australian market set to react to US-Iran peace deal collapse, Trump’s blockade threat
Staff writers
Australia’s stock market will be the first major stock market to react to the US and Iran’s failure to reach a peace deal over the weekend, analysts say. This is expected to weigh on investor sentiment, push oil prices higher again and increase demand for safe-haven assets on Monday, analysts say.
Donald Trump’s promise to blockade the Strait of Hormuz after the failure of the talks further increased the pressure on the oil markets. The move could halt the rest of the shipments still moving through the waterway, increasing tensions with China, Iran’s main buyer.
Market experts said investor confidence would be as fragile as the truce in the Persian Gulf, although ASX futures showed the local stock market could climb above 9000 for the first time since the start of the war, with ASX futures up 70 points, or 0.8 per cent. The Australian dollar was down 1.2 per cent to 69.77¢ as of 06:46 AEST.
The ASX fell 0.1 per cent on Friday but retained most of its gains from earlier in the week as investors remained cautiously optimistic about the fragile ceasefire in the Middle East.
“The key question on Monday is whether markets interpret this as a temporary lapse in negotiations or a structural collapse of the ceasefire framework,” said Kyle Rodda, market analyst at Capital.com.
Elias Haddad, head of global market strategy at Wall Street investment firm Brown Brothers Harriman & Co, predicted: “Trump’s move to announce a naval blockade of the Strait of Hormuz this week will reignite risk aversion.
“Crude oil prices are likely to recover some of the declines experienced due to last week’s ceasefire, but the potential for escalating tensions with China, a major buyer of Iranian oil, could also increase uneasiness in the market.”
Oil futures eased Friday ahead of U.S.-Iran talks but still finished last week 30 percent above their pre-war level. As they scramble to find supplies, traders are paying record amounts of more than $140 per barrel for some actual cargoes.
Trump said the United States would launch a full naval blockade of the strategic Strait of Hormuz and threatened retaliation if Iran resisted, further escalating a standoff that has brought the waterway to a near standstill and disrupted global energy supplies.
The president’s announcement came hours after the United States and Iran failed to reach an agreement in direct talks in Pakistan, jeopardizing a fragile ceasefire and hopes of bringing a permanent end to a war that has cost thousands of lives. Trump said in a post on Truth Social on Sunday that the talks collapsed over differences on the nuclear issue.
“Effective immediately, the U.S. Navy, the Best Navy in the World, will begin the process of BLOCKING all Ships attempting to enter or exit the Strait of Hormuz,” he said. “Any Iranian who fires at us or at peaceful ships WILL BE THROWN INTO HELL!”
The failure of the United States and Iran to reach a peace agreement and Trump’s threats caused the ceasefire to remain indefinite last week. Trump said the United States would ban all ships paying tolls to Iran for safe passage through Hormuz and clear mines in the strait, through which about a fifth of global oil and liquefied natural gas flowed before the war.
AT Global Markets Australia’s chief market analyst Nick Twidale said, “I think oil will open higher along with the dollar on Monday due to risk aversion. Equities are expected to take a significant hit and yields will rise.”
On Wall Street, the S&P 500 fell 0.1 percent on Friday after a choppy day of trading as investors awaited the outcome of weekend peace talks. The Dow Jones Industrial Average fell 0.6 percent and the Nasdaq composite rose 0.4 percent.
Each of the major indexes posted weekly gains for the second week in a row. They have been gaining ground this month amid optimism that the war with Iran could move toward a resolution with high-level talks between Iranian and U.S. negotiators scheduled for Sunday.
The benchmark S&P 500 has erased most of its losses in March and remains just 2.3 percent behind the all-time high it set in January. The market is still subject to great fluctuations due to war-related developments.
Oil prices are behind most of the sharp movements in the stock market. This number has risen sharply since the war began, due to the halt of shipping in the vital Strait of Hormuz.
Brent crude, the international standard, rose from around US$70 per barrel before the war to above US$119 at times in late February. Brent for June delivery fell 0.8 percent to $95.20 per barrel on Friday. A barrel of US crude oil for May delivery fell 1.3 percent to $96.57.
The war in the Middle East was behind the rising inflation in the USA in March. The government reported the biggest increase in inflation in four years, driven by rising prices at gas stations. The increase in inflation was much lower than economists expected.
Bond yields rose slightly following the last inflation update. The yield on the 10-year Treasury note rose to 4.32 percent on Friday from 4.29 percent at the end of Thursday.
Inflation has been a persistent concern for economists. Prices for a range of consumer goods and services are already stubbornly high, partly due to the impact of extensive global tariffs. Higher gas prices are felt immediately by drivers at the pump, but as companies take on higher transportation and fuel costs, they can eventually raise prices on everything from food to airline tickets.
U.S. consumer confidence fell 10.7 percent in April, according to a closely watched monthly survey from the University of Michigan. The report also shows that consumers are increasingly concerned about inflation, with year-ahead expectations rising to 4.8 percent in April from 3.8 percent in March.
Inflation remains a key concern for the Federal Reserve, which has signaled greater caution amid concerns about reheating inflation. The inflation rate remains above the central bank’s 2 percent target. The threat of rising inflation will likely mean that the central bank will continue to keep interest rates steady. Many Fed officials have said that an interest rate increase may be needed if inflation does not decrease.
Low interest rates help boost stocks and other investments by lowering borrowing costs. Interest rate cuts also carry the risk of worsening inflation.
Most companies in the S&P 500 lost value on Friday; Most of the decline occurred in the shares of healthcare and financial companies. Eli Lilly fell 1.6 percent and Charles Schwab fell 2.5 percent. Highly valued technology stocks helped offset losses elsewhere. Nvidia rose 2.6 percent and Broadcom rose 4.7 percent.
In other international markets, markets in Asia gained strength, while markets in Europe showed a mixed outlook.
Bloomberg via AP
