ASX to rally; Wall Street edges near all-time high; oil eases
Staff writers
Updated ,first published
Australia’s stock market continued its gains when it opened for trading following a rally in global markets as oil prices retreated on optimism that the US and Iran will meet for a second round of talks in the coming days to end their war and avert a worst-case scenario for the global economy.
The S&P/ASX 200 rose 0.3 per cent in the 10 minutes after the open, extending Tuesday’s 0.5 per cent gain. It was trading up 18 points, or 0.2 per cent, at 8988.80 at 11:18 AEST. The Australian dollar was trading at 71.27¢ at the same time.
Shares in Virgin Australia rose 6.8 per cent after the airline said rising fuel costs as a result of the Iran war were largely “mitigated through effective fuel hedging and recent airfare and capacity adjustments” and left its earnings forecasts unchanged.
Its assurance comes a day after larger rival Qantas said there was an $800 million increase in fuel costs linked to conflicts in the Middle East, which would negatively impact its profits. Virgin said its exposure to unhedged crude and refining margins would increase fuel costs from $30 million to $40 million, far less than its rival’s. The airline said it would reduce its flights slightly in the coming months to control costs.
Gold miner Evolution Mining also rallied, rising 7 per cent in early trade after reporting high-margin cash flows in the March quarter, supported by higher gold prices. Other miners were steady in early trading. Gold maintained its gains on optimism that the United States and Iran are seeking a solution to the war by easing inflation concerns stemming from an energy supply shock. Bullion was around $4,840 per ounce in early trading after rising 2.1 percent in the previous session.
Commonwealth Bank and National Australia Bank rose slightly, with gains of 0.3 per cent and 0.9 per cent, while Westpac lost 0.5 per cent and ANZ Bank was flat.
Energy companies were lower in morning trade as oil prices eased; oil and gas giants Woodside and Santos fell 3 percent and 2.6 percent, respectively. Brent crude oil was pegged above US$94 a barrel after losing nearly 5 per cent on Tuesday, while West Texas Intermediate was near US$90. While this is still above the price of around US$70 in late February before the start of the war, it is well below the peak of US$119 reached by oil prices when concerns about the war were at their height.
Overnight on Wall Street, US stocks traded near all-time highs. The S&P 500 extended its jump by 1.2 percent from the previous day and remained just 0.2 percent below the record set in January. The Dow Jones Industrial Average rose 0.7 percent and the Nasdaq composite rose 2 percent.
This follows gains in stock markets around the world as diplomats work through back channels to organize a new round of talks between the US and Iran. Such expectations also helped reduce the price of oil, whose production and transportation have been disrupted by conflict.
Indices rose across 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.
“This isn’t about whether there’s progress in the peace talks, it’s about whether we can reasonably hope there can be progress in the peace talks,” said Steve Sosnick, chief strategist at Interactive Brokers. “Vibrations are stronger than reality.”
Trump said talks in Pakistan could continue “within the next two days.” New York Post reported. This would build on a protracted but inconclusive session in Islamabad on Saturday night. Meanwhile, the United States continues to impose a naval blockade of Hormuz to prevent the Islamic Republic’s oil exports as the fight for control of the strategic waterway intensifies.
If the talks are successful and the Iran war ends up being only a temporary setback for the global economy rather than a new normal of sky-high oil prices and inflation, financial markets could turn their attention back to rising profits for corporations and growth for economies.
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.
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.
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.
Amazon rose 3.8 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.
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 on Monday.
AP via Bloomberg
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