United States
Wall Street struggled to find direction overnight as geopolitical anxiety surrounding the war in Iran overshadowed what would otherwise have been a welcome inflation report.
The S&P 500 finished essentially flat, slipping just 0.1%, while the Dow Jones Industrial Average dropped 0.6% to 47,408. The Nasdaq 100 was little changed. Consumer staples led eight of the S&P 500’s eleven sectors lower, though pockets of strength in technology helped offset broader weakness.
February’s consumer price index offered a glimmer of encouragement, with underlying inflation easing slightly from the prior month. But any optimism was quickly tempered by the reality that the data preceded the outbreak of the Iran conflict, and the war-driven surge in energy costs is expected to push consumer prices materially higher in the months ahead. Some economists now see annual inflation hitting as high as 3% this month.
The inflation backdrop has complicated the outlook for the Federal Reserve. Treasury yields pushed higher, with the benchmark 10-year rising roughly six basis points to 4.22%, as traders pared rate cut expectations to just one reduction this year. Morgan Stanley’s economics team still expects two quarter-point cuts beginning in June, but acknowledged the oil price shock could delay the first move until September or even December.
On the corporate front, Oracle was the standout performer, surging 9.2% after delivering strong quarterly sales and issuing guidance that pointed to sustained demand for artificial intelligence computing. Nvidia edged 0.7% higher after announcing a US$2 billion investment in Nebius Group to develop AI data centres, sending Nebius shares up more than 16%. Elsewhere, Salesforce attracted tepid interest for a US$25 billion bond sale amid concerns about its debt-funded buyback and broader software sector AI exposure, while JPMorgan moved to restrict some lending to private credit funds after marking down certain loan values.
Europe
European equities finished in the red but trimmed losses late in the session after President Trump suggested the Iran conflict would end “soon.” The Stoxx 600 fell 0.6%, with sector performance sharply divergent.
Energy was the clear winner, closing at a record high with a gain of 1.6% as oil prices held firm despite the International Energy Agency announcing an unprecedented release of 400 million barrels from emergency reserves. Polish energy group Orlen jumped 5.6% after analysts predicted the disruption in energy markets would lift its margins, while Repsol and Neste also rallied strongly.
Defence stocks endured a rough session, with Rheinmetall tumbling 8% after its forward guidance fell short of expectations despite the surge in European military spending. Leonardo also slipped 3.2%. The retail sector bucked the downward trend, rising 0.3% after Inditex reported strong recent sales growth and travel retailer Avolta met expectations despite the Middle East conflict. Technology stocks outperformed on a relative basis, buoyed by Oracle’s overnight results, with Capgemini and ASM International both advancing.
On the downside, real estate was the weakest sector, falling 2.1% as Vonovia slumped nearly 6%. Financials dropped 1.5%, dragged lower by CVC Capital Partners after yet another guidance cut, while insurers softened after Legal & General posted a weaker solvency ratio than anticipated. Construction managed to limit losses, with Balfour Beatty surging 8.9% on better-than-expected profits and an enlarged buyback.
Australia
Australian shares are poised for a weaker open on Thursday, with S&P/ASX 200 futures pointing down 47 points, or 0.5%, to 8,683 near 7.25am AEDT.
Interest rate expectations locally have taken a hawkish turn, with three of the Big Four banks now seeing the Reserve Bank of Australia hiking at its March meeting. That comes as Australia’s top fuel sellers have halted spot sales amid tightening supply, underscoring the domestic impact of the conflict in the Middle East.
In broker activity, Jarden upgraded Collins Foods to overweight, while UBS trimmed its price target on Dalrymple Bay Infrastructure to $6.50 from $7.50. Bell Potter lifted Lynas Rare Earths to hold. Airlines are also in focus after carriers across the region raised fares and fuel surcharges in response to wild oil price swings, putting Qantas and Air New Zealand on the watchlist. Liontown Resources is expected to draw attention following its latest earnings update.
In the ETF space, Australia’s exchange-traded fund industry attracted $4.5 billion in new flows during February, pushing total assets under management to a record $343 billion.
Bond yields were mixed, with the three-year falling 1.4 basis points to 4.46% and the ten-year edging up 0.3 basis points to 4.85%. BHP’s American depositary receipts slipped 0.7% overnight, while Rio Tinto’s ADRs added 0.4%.
Commodities and Currencies
Oil surged again as escalating rhetoric from global leaders over the Iran conflict outweighed the IEA’s historic decision to release 400 million barrels from emergency stockpiles. West Texas Intermediate gained roughly 5.4% to settle above US$87 a barrel, while Brent crude climbed 5.3% to US$92.44. Iran’s ceasefire demands, which include guarantees that neither the US nor Israel will launch future strikes, were seen as unlikely to be accepted, further dampening prospects for a swift resolution. Macquarie’s global FX and rates strategist noted the reserve release covers only about 16 days of Persian Gulf supply, suggesting crude will continue to behave erratically until peace is achieved.
Gold eased 0.2% to US$5,183 an ounce as traders weighed the stronger US dollar against safe-haven demand. Aluminium firmed on supply disruption fears, with offer prices in Japan climbing to an 11-year high. Iron ore rose 0.5% to US$104.25 a tonne.
The Australian dollar bucked the broader trend, gaining 0.5% to 71.53 US cents despite a firmer greenback. The euro slipped 0.3% to US$1.1574, while the Japanese yen weakened 0.6% to 158.95 per dollar. Bitcoin climbed past US$70,000 as some traders positioned the token as a hedge against war-driven market volatility.
Economic Calendar
US:
- Trade Balance Jan 23:30
- Initial Jobless Claims 23:30
- Housing Starts Jan 23:30
This article was written by Calvin Curdie, Rivkin Securities Pty Ltd. Enquiries can be made via [email protected] or by phoning +612 8302 3632.
