United States
US equity futures retreated overnight, weighed down by growing concerns over Federal Reserve policy direction and potential US military involvement in the Middle East. With Wall Street closed for the Juneteenth public holiday, trading volumes were thin, but S&P 500 futures still fell 0.9% and Nasdaq 100 futures dropped 1.1%, pointing to a risk-off tone heading into the weekend.
Market sentiment soured after reports emerged that senior US officials are preparing for a possible strike on Iran, intensifying investor concerns about a wider conflict in the region. White House press secretary Karoline Leavitt confirmed that President Trump will decide within two weeks whether to back Israel militarily, offering little immediate reassurance. Strategists warn that a US strike could trigger a sharp knee-jerk market reaction and potentially add a fresh wave of inflation via higher oil prices.
The Federal Reserve’s recent downgrade of growth projections and warnings of elevated inflation further dampened risk appetite. Policymakers continue to signal two rate cuts by year-end, but traders are increasingly sceptical, with inflationary pressures from tariffs and geopolitical tensions threatening to delay any easing. Treasuries were largely unchanged, with the 10-year yield steady at 4.39%.
Europe
European equities extended their slide overnight, with the Stoxx Europe 600 dropping 0.8% for its third consecutive day of losses. The persistent geopolitical uncertainty, particularly around the Middle East conflict, has caused investor sentiment to sour. The recent news that senior US officials are preparing for potential military action against Iran has heightened the risk of further escalation, which is making investors cautious.
In addition to geopolitical concerns, central banks across Europe continue to send mixed signals regarding monetary policy. The Bank of England held interest rates steady at 4.25%, but the decision came amid a more divided vote than expected, with several members advocating for a rate cut. This underscores the challenges the Bank faces as it balances the UK’s weak economic growth against persistent inflationary pressures. While the BoE is under pressure to support the economy, inflation remains stubbornly high, making rate cuts risky.
Meanwhile, the Swiss National Bank cut its key interest rate to zero in a bid to prevent the Swiss franc from appreciating further. This policy move comes amid fears that the strong currency could hurt Swiss exports and tourism. The Norwegian central bank also made an unexpected move, cutting rates for the first time since the pandemic, signaling its concern about weakening growth.
Sector performance in Europe was mixed, with energy stocks outperforming as oil prices rose, driven by the ongoing geopolitical risk premium. Consumer products and travel stocks lagged, with some major companies like Nestlé and Hays Plc facing challenges. Nestlé, down 0.9%, is dealing with leadership changes, while Hays Plc slumped 9.8% following a disappointing trading update. Other stocks that experienced notable movements included Vodafone, which rose 1.0%, on the back of a leadership transition.
Investor caution has led to a more defensive posture in Europe, with some analysts noting that rising volatility could be a precursor to a broader market pullback if geopolitical tensions intensify further. Despite gains earlier this year, the situation is precarious, and European markets may remain volatile as the uncertainty surrounding the Middle East and the future path of central bank policy continue to weigh on sentiment.
Australia
Australian equities closed lower in the most recent session, with the S&P/ASX 200 Index retreating by 0.1%, or 7.5 points, to 8,523.7. The main drag came from the mining sector, with major players like BHP, Rio Tinto, and Fortescue experiencing losses. Iron ore prices remained under pressure as weaker demand from China, coupled with concerns about the global growth outlook, weighed on the sector. Citi’s revised short-term iron ore forecast to US$90 per tonne added to the bearish sentiment in the sector.
Despite these challenges, the banking sector showed resilience, with Commonwealth Bank hitting a fresh record high, rising by 1.5% to $182.85. Other banks followed suit, with Westpac, NAB, and ANZ also posting gains. The banks have continued to attract investors looking for more stable returns amid the volatility in commodities, demonstrating the appeal of defensive sectors in turbulent times.
Australia’s employment data released on Thursday painted a mixed picture. While employment dropped by 2.5k in May, the unemployment rate remained steady at 4.1%, consistent with the Reserve Bank of Australia’s (RBA) expectations. More encouragingly, hours worked surged by 1.3%, suggesting continued resilience in the labour market, albeit with some distortions due to seasonal factors like the timing of Easter and natural disasters. However, the dip in employment and the decline in the participation rate may signal a cooling in labour demand, which could eventually lead to higher unemployment levels in the second half of the year. The RBA is expected to keep rates steady for now, but further cuts may come in 2025 as economic conditions weaken.
Investors are keeping a close eye on the Australian job market, particularly as it relates to broader economic trends. The likelihood of rising unemployment through 2025, combined with softer consumer spending, could lead to more cautious investor sentiment. However, resilient sectors like banking and defensive stocks could continue to offer safe havens.
The ASX futures market points to a lower open on Friday, down by 0.5% to 8,478, as global geopolitical and inflation concerns weigh on investor sentiment. With Wall Street closed for the public holiday, it’s expected that Australian investors will continue to monitor overseas developments for further direction.
Commodities
In the commodities space, oil prices remained volatile, driven by heightened geopolitical risks in the Middle East. Brent crude surged 2.5% to US$78.63 per barrel, while West Texas Intermediate (WTI) also saw significant gains, hitting an 11-month high of US$75.80. The market is pricing in a geopolitical premium, which has added around US$8 to the price of Brent crude. With the potential for further escalation in the Israel-Iran conflict, some analysts predict that oil prices could spike to as high as US$130 to US$150 per barrel if the situation deteriorates significantly. This potential supply disruption, especially if the US becomes directly involved, is keeping oil prices volatile and could impact broader inflation trends.
Gold, often seen as a safe-haven asset in times of uncertainty, was little changed at US$3,371.85 per ounce. Despite ongoing geopolitical tensions, demand for gold has been somewhat tempered by market volatility in other assets, and the price remains stable within a relatively tight range. However, gold remains a key asset for investors looking to hedge against further market instability.
The Australian dollar (AUD) fell 0.8% to 64.56 US cents, reflecting broader global risk aversion. The strength of the US dollar in the face of geopolitical risks and global economic uncertainty has pressured the AUD, which is heavily influenced by commodity exports. The ongoing volatility in oil and iron ore markets, coupled with softer-than-expected domestic economic data, further contributed to the currency’s weakness.
In the cryptocurrency space, Bitcoin fell 0.5% to US$104,331.82, while Ethereum slipped 0.8% to US$2,510.17. Digital assets have generally shown relative stability compared to the volatility in traditional markets, though they remain highly sensitive to regulatory news and broader market sentiment.
Iron ore, another key Australian export, continued to struggle, down 0.2% to US$92.60 per tonne. Concerns about oversupply in the market and weaker Chinese demand remain central to the negative sentiment around iron ore. Citigroup’s downgrade of short-term price forecasts is contributing to the bearish outlook for the sector, and the commodity’s price has been under pressure for several weeks.
Looking ahead, commodity markets will remain highly sensitive to geopolitical developments, particularly in the Middle East, and the ongoing volatility is likely to continue influencing investor sentiment across both traditional and alternative assets.
Economic Calendar
EU:
- Consumer Confidence (June) 00:00
This article was written by Paul Darwell, Rivkin Securities Pty Ltd. Enquiries can be made via [email protected] or by phoning +612 8302 3632.
