United States
Wall Street endured a bruising session overnight as the escalating conflict in Iran and fresh concerns about US semiconductor export controls combined to push equities lower across the board.
The S&P 500 shed 0.6%, recovering from steeper intraday losses but still finishing well in the red as eight of its 11 sectors declined. The Dow Jones Industrial Average bore the brunt of the selling, tumbling 1.6% with Caterpillar and Goldman Sachs among the heaviest weights. At its worst point, the Dow was down more than 1,000 points before bargain hunters stepped in. The Nasdaq 100 held up marginally better, falling 0.3%.
Chipmakers were a notable drag after reports emerged that the Trump administration is drafting regulations that would require permits for virtually all exports of artificial intelligence accelerators, expanding curbs that currently cover about 40 countries to a near-global regime. A closely watched semiconductor index fell 1.2% on the news, with Nvidia and AMD both under pressure. The proposed rules remain in draft form and could still change substantially.
Surging oil prices and their implications for inflation dominated the broader narrative. The US-Israeli military campaign against Iran entered its sixth day with no sign of easing, and the conflict is increasingly disrupting crude flows to major buyers. US crude settled around $US81 a barrel, while the Trump administration signalled it is considering options to address rising fuel costs.
The bond market continued to sell off, with the 10-year Treasury yield climbing four basis points to 4.13%, its fourth consecutive daily increase. The prospect of sustained energy price inflation is complicating the outlook for Federal Reserve rate cuts, with Richmond Fed President Tom Barkin noting that the central bank’s response would hinge on how long the economic impact persists.
Weekly jobless claims data, released ahead of Friday’s keenly awaited payrolls report, showed filings near some of the lowest levels in the past year. The February employment report is expected to show a moderation in hiring after January’s strong reading, though Capital Economics warned the risks are tilted towards the Fed not cutting rates at all this year.
On the corporate front, Oracle is planning to shed thousands of jobs as it grapples with the cash demands of its massive AI data centre build-out. Broadcom’s chief executive said the company expects AI chip revenue to exceed $US100 billion next year. Morgan Stanley is trimming about 3% of its global workforce, while Berkshire Hathaway CEO Greg Abel pledged to invest his entire salary in the conglomerate’s shares for the duration of his tenure, a move that sent Berkshire stock climbing as much as 2.3%.
Europe
European equities suffered their worst session of the week as the Iran conflict reverberated across the continent, with the Stoxx 600 falling 1.3% in a broad-based retreat.
Airlines were among the hardest hit after Wizz Air issued a profit warning linked to Middle East disruptions, with flight cancellations across the region topping 23,000. The travel sector dropped 1.8%, with Ryanair falling 4% and EasyJet sinking 5%, the latter also losing its place in the FTSE 100.
Defence stocks, which have been strong performers in recent months, reversed sharply. The industrials sector fell 2.3%, with Rheinmetall down 5.6%, Leonardo off 6.1% and Thales losing 5.7%. Banks also weakened, shedding 1.7% as Santander, Barclays and SocGen all fell more than 2.5%. Basic resources were the worst-performing sector, dropping 3.8% as copper prices slid on surging LME inventories and China set its lowest growth target since 1991. Rio Tinto fell 5.6%.
Among the few bright spots, media stocks gained 1.7%, led by WPP’s 6.6% surge. Campari rallied 10% after reporting strong fourth-quarter revenue growth, while Rentokil jumped 10.7% on encouraging signs from its US operations. Technology stocks held roughly flat, supported by software names and select chipmakers buoyed by Broadcom’s upbeat forecast.
Australia
Australian shares are set for a painful start to Friday’s session, with S&P/ASX 200 futures pointing to a fall of around 125 points, or 1.4%, to 8,801.
The miners face particular headwinds. BHP’s American depositary receipts fell 4.3% overnight, while Rio Tinto’s ADRs dropped 3.9%. BHP also faces attention after reports that China’s state iron ore buyer has summoned traders over restrictions on the miner.
Energy names could provide some offset given the surge in oil prices. Jarden upgraded Santos to overweight with a price target of $8, while Morningstar noted that both Woodside and Santos look increasingly compelling at current valuations given their exposure to elevated energy prices. Santos has also flagged it will keep 17% of its gas output uncontracted over the next five years.
In broker activity, Barrenjoey raised Charter Hall Group to overweight and lifted Stockland to overweight, while cutting Scentre Group to neutral. Jarden also upgraded Karoon Energy to buy. Separately, Westpac confirmed plans to deregister from the US Securities and Exchange Commission in May.
On the economic front, household spending data showed a rebound, a development the Reserve Bank will be watching closely as it weighs the prospect of further rate increases. Bond yields tracked their global peers higher, with the three-year up 5.4 basis points to 4.36% and the ten-year rising 5.1 basis points to 4.80%.
Commodities and currencies
Oil prices surged as the Iran conflict continued to threaten supply routes. West Texas Intermediate jumped 7% to $US79.86 a barrel, while Brent crude climbed 5.4% to $US85.81. QatarEnergy has declared force majeure on LNG shipments from its Ras Laffan hub, removing roughly 20% of global supply and sending European gas prices sharply higher.
Gold fell 1.2% to $US5,079.92 an ounce, with the stronger US dollar and elevated Treasury yields outweighing haven demand from the conflict. Iron ore added 1.5% to $US100.25 a tonne, though copper declined as LME-tracked inventories hit a 16-month high.
The Australian dollar dropped 0.9% to US70.11 cents as the greenback strengthened broadly. The euro slipped to $US1.1605, while the yen weakened 0.3% to 157.55 per dollar. Bitcoin fell 2.8% to $US71,293, with ether down 2.6%.
Economic Calendar
EU:
- GDP SA YoY 21:00
US:
- Retail Sales Advance MoM 00:30
- Change in Nonfarm Payrolls 00:30
- Unemployment Rate 00:30
This article was written by Calvin Curdie, Rivkin Securities Pty Ltd. Enquiries can be made via [email protected] or by phoning +612 8302 3632.
