United States
Wall Street endured a bruising session as the escalating war in Iran triggered wild swings across asset classes, though a late recovery spared investors from the worst of the damage.
The S&P 500 plunged as much as 2.5 per cent in early trade before clawing back to finish 0.8 per cent lower, while the Dow Jones Industrial Average shed 0.6 per cent after being down more than 1,200 points at its nadir. The Nasdaq 100 dropped 0.9 per cent.
The dramatic intraday reversal was sparked by President Donald Trump announcing on social media that the United States would provide risk insurance for all vessels travelling through the Gulf and that the Navy would begin escorting oil tankers through the Strait of Hormuz. The measures were designed to head off a potential energy crisis as the critical shipping lane remains all but shut.
The conflict continued to reverberate across the region, with Israel launching a fresh wave of strikes on Tehran while the Islamic Republic fired missiles at Qatar, Bahrain and Oman. Qatar and Iraq halted production at major energy sites, adding to supply fears that sent oil prices surging before they too pared gains on the tanker escort announcement.
The Treasury market also felt the strain, with the 10-year yield rising two basis points to 4.06 per cent as traders grappled with the inflationary implications of soaring fuel costs. Higher diesel and petrol prices threaten to feed through into transportation costs, a key component of broader inflation, potentially complicating the Federal Reserve’s rate path.
On the corporate front, Target forecast better-than-expected full-year profit, while Best Buy reported holiday-season earnings that topped estimates. Apple updated its MacBook Air and MacBook Pro lineups with faster processors, though it also raised prices.
Europe
European equities posted their steepest two-day decline since April as the intensifying Middle East conflict upended the inflation and monetary policy outlook.
The Stoxx Europe 600 tumbled 3.1 per cent, following a 1.6 per cent drop the previous session, with every sector finishing in the red. The Euro Stoxx 50 slid 3.6 per cent and the German DAX lost 3.4 per cent.
Adding to the gloom, euro-area inflation unexpectedly accelerated, reinforcing the European Central Bank’s cautious stance on interest rates. Money markets now price better than even odds of an ECB rate hike before year’s end, a stark reversal from expectations of further easing just a week ago. German 10-year bond yields climbed to 2.8 per cent.
Energy was the lone bright spot, outperforming as Brent crude surged more than 15 per cent over two sessions. Aker BP, Repsol and Equinor were among the few stocks to post gains. Utilities, insurance and banking shares bore the brunt of the selling, though JPMorgan analysts noted the bank sector selloff may have gone too far given the limited direct earnings impact so far.
Zurich Insurance fell 6.7 per cent after launching a $US5 billion capital raise to fund its bid for insurer Beazley, while Beiersdorf, the owner of Nivea, crashed 20 per cent on disappointing guidance.
Australia
Australian shares are set for further losses on Wednesday, with ASX 200 futures down 98 points, or 1.1 per cent, to 8,936 near 7am AEDT, though that was a significant improvement on earlier falls of more than 2 per cent.
The benchmark S&P/ASX 200 already dropped 1.3 per cent on Tuesday, retreating from Monday’s record close of 9,202 as 10 of 11 sectors finished lower. Coal miners were a standout, with New Hope surging 7.4 per cent and Yancoal gaining 4.9 per cent after Newcastle coal prices jumped 8.6 per cent to $US128.70 a tonne following Qatar’s decision to shut its largest LNG plant.
Among oil producers, Woodside added 0.8 per cent and Ampol rose 3.2 per cent, though gold miners reversed Monday’s gains with Newmont, Northern Star and Evolution all falling sharply despite elevated geopolitical tensions.
Real estate stocks were under pressure after bond traders ramped up bets on another rate increase in Australia by May, following hawkish comments from Reserve Bank governor Michele Bullock.
Wednesday’s key data release is fourth-quarter GDP at 11.30am AEDT, with NAB economists forecasting 0.6 per cent quarter-on-quarter growth, lifting annual growth to 2.2 per cent. Endeavour Group is also due to report results.
Commodities and currencies
Oil prices whipsawed violently before settling well off their highs. Brent crude briefly topped $US85 a barrel before paring to $US79.48, up 2.2 per cent, while West Texas Intermediate gained 3.6 per cent to $US73.80. Some analysts are forecasting oil could spike as high as $US100 if disruptions persist through the Strait of Hormuz.
Gold suffered a sharp reversal, plunging 3.8 per cent to $US5,122 an ounce after tumbling more than 6 per cent at one point as investors rushed to liquidate positions for margin calls elsewhere.
The Australian dollar weakened 0.7 per cent to 70.43 US cents as the greenback strengthened broadly. The euro slipped 0.6 per cent to $US1.1614, while the yen fell 0.2 per cent to 157.63 per dollar. Iron ore eased 1.1 per cent to $US98.20 a tonne.
Bitcoin dipped 1.4 per cent to $US68,461, with ethereum losing 2.7 per cent.
Economic Calendar
AU:
- GDP 11:30
EU:
- PMI 20:00
- PPI 21:00
US:
- ISM Services PMI 02:00
This article was written by Calvin Curdie, Rivkin Securities Pty Ltd. Enquiries can be made via [email protected] or by phoning +612 8302 3632.
