United States
Wall Street ended the week on the back foot as the escalating conflict between the US and Iran continued to roil risk appetite, with surging oil prices and mounting inflation fears keeping investors firmly on the defensive.
The S&P 500 fell 0.6% to 6,632, marking its third consecutive weekly decline. The index now sits roughly 5% below the record high reached in January. The Dow Jones Industrial Average shed 0.3% to 46,558, while the tech-heavy Nasdaq dropped 0.9% as growth stocks bore the brunt of the selling.
Energy markets remain the epicentre of the turmoil. Brent crude has surged 40% since the end of February as the fighting enters its third week, with US bombing of military targets on Kharg Island, Iran’s primary oil export hub, threatening to inject fresh volatility into an already rattled market. President Trump said over the weekend that military facilities on the Persian Gulf island had been destroyed, though he claimed oil infrastructure was spared.
Trump also indicated Iran was ready to negotiate an end to the war, which has effectively frozen shipping through the Strait of Hormuz, a chokepoint handling roughly a fifth of global oil exports. However, Iran’s foreign minister denied any request for talks or a ceasefire had been made, leaving traders with little clarity heading into the new week.
Market stress is building at the fastest pace since April’s tariff shock. A Bank of America index tracking options-implied volatility across equities, rates, currencies and commodities jumped last week to levels approaching those seen during the turmoil triggered by the rollout of aggressive trade levies 11 months ago. The VIX edged up to 27.19. The US 10-year Treasury yield closed at 4.28%, having risen more than 30 basis points through March as inflation expectations ratchet higher.
The White House’s National Economic Council head Kevin Hassett said the Pentagon estimates the Iran mission could take four to six weeks, adding the US is ahead of schedule. The International Energy Agency has warned the supply disruption is unprecedented, and member countries announced plans to release 400 million barrels from emergency reserves to help ease soaring prices.
Europe
European equities also closed lower on Friday, with the Stoxx 600 falling 0.5% as traders squared away positions ahead of a weekend heavy on geopolitical news flow. Oil trading above US$100 a barrel cast a long shadow across the continent’s bourses.
Defensive sectors led the way as investors sought shelter from the storm. Food stocks climbed 1.3%, with Danone, Imperial Brands and Heineken all advancing. Telecoms gained 1.1%, buoyed by Cellnex, Orange and KPN, while utilities also rose 1.1% on strength from Enel, E.On and RWE. Insurers added 0.7%.
On the other side of the ledger, basic resources suffered the heaviest losses, tumbling 3.3% as aluminium dropped from a four-year high and base metals declined on fears a prolonged Middle East conflict would weigh on the global economy. Consumer products and services fell 2.1%, dragged lower by LVMH, which had its price target cut, along with Kering and Burberry. Industrials dropped 1.8%, with Sandvik and Rolls-Royce among the biggest decliners.
Travel stocks slid 1.3% as soaring jet fuel prices continued to pressure airlines and threaten earnings. Automotive names also struggled, falling 1.4% as Stellantis, VW and D’Ieteren weighed on the sector. Banks dropped 1.2%, with Standard Chartered hit by private credit concerns.
In brighter pockets, BE Semiconductor jumped 5.6% after reports the company was the target of takeover interest, while Zalando rallied 6.9% following an upgrade at Bernstein. Energy stocks edged up 0.3%, with TotalEnergies climbing 2.7% to a record close. The FTSE 100 lost 0.4% to 10,261.
Australia
Australian shares are poised for a weak start to the week, with S&P/ASX 200 futures pointing to a fall of 61 points, or 0.7%, to 8,547. The local market has now shed 6.3% since the US and Israel began attacking Iran a fortnight ago, wiping more than $190 billion in value.
All eyes will be on the Reserve Bank’s meeting on Tuesday, with traders increasingly pricing in a 25 basis point rate hike to 4.1%. Australia’s big four banks are all tipping increases in both March and May as the oil price shock threatens to push headline inflation into the mid-to-high fours, according to Treasurer Jim Chalmers. Markets are now factoring in as many as three further rate rises this year, which would lift the cash rate to its highest level since 2011.
BHP’s American depositary receipts fell 2.9% overnight, while Rio Tinto’s ADRs dropped 3.2%. Rio Tinto is slowing the pace of its Quebec lithium plant as costs soar, while China has eased its ban on BHP iron ore after steel mills rushed to buy. South32 placed its Mozal aluminium smelter in Mozambique on care and maintenance after failing to secure affordable power supply, with one-off costs expected to total about US$60 million.
Lynas Rare Earths signed a binding deal with the US Department of Defence to supply light and heavy rare earth oxides, with approximately US$96 million allocated for purchases. Perpetual inked a binding agreement to sell its Wealth Management business to Bain Capital for $500 million upfront, with potential additional payments of up to $50 million. Orica will pay US$169.5 million to settle litigation with CF Industries and separately agreed to acquire its joint venture partner’s US explosives business.
In broker action, JPMorgan cut Northern Star to neutral, Citi downgraded Qube to neutral, and Jarden lowered Syrah Resources to neutral as the miner extended a deadline with Tesla over a graphite supply dispute. Jarden raised Lifestyle Communities to neutral.
Bond yields ticked higher, with the three-year rising 2 basis points to 4.57% and the ten-year sitting at 4.95%.
Commodities and Currencies
Oil remains the dominant force across all asset classes. Brent crude climbed 3.3% to US$103.81 a barrel on Friday, its second consecutive session above US$100, as the Strait of Hormuz remains effectively closed to commercial shipping. The market will be watching closely when oil futures resume trading at 9am AEDT for any reaction to the weekend’s Kharg Island developments and Trump’s calls to reopen the strait.
Gold slipped 1.2% to US$5,019.49 an ounce, heading for a weekly decline as the haven trade rotated towards the US dollar. Iron ore edged up 0.1% to US$107.95 a tonne.
The Australian dollar fell 1.4% to 69.81 US cents as the greenback strengthened broadly, emerging as a key haven during the conflict. A Bloomberg gauge of the US currency climbed to its highest level this year. The euro dropped 0.7% to US$1.1426.
Bitcoin gained 1.6% to US$71,476.
Economic Calendar
US:
- Empire Manufacturing Mar 23:30
- Industrial Production Feb 00:15
This article was written by Calvin Curdie, Rivkin Securities Pty Ltd. Enquiries can be made via [email protected] or by phoning +612 8302 3632.
