United States
Wall Street managed a cautious advance on Tuesday as investors attempted to look through the inflationary implications of surging oil prices, even as the US-Israeli conflict with Iran showed no sign of winding down.
The S&P 500 rose 0.25% to 6,714.60, with most constituents finishing in the green, though gains faded from earlier highs as US crude settled above US$96 a barrel. The Nasdaq 100 outperformed with a 0.5% gain, while the Dow Jones Industrial Average was essentially flat at 46,979.58. Bond yields fell alongside the US dollar ahead of the Federal Reserve’s policy decision, due at 5am AEDT on Thursday.
The geopolitical backdrop remained intense. Israel said it had killed Iran’s security chief, Ali Larijani, after Tehran set a major natural gas field in the United Arab Emirates ablaze overnight. President Donald Trump threatened to expand strikes on Kharg Island, Iran’s main crude export hub, while abandoning efforts to recruit allies for the conflict and publicly criticising those who rejected his appeals. Reports also emerged that Russia is sharing satellite imagery and drone technology with Iran.
Airlines were among the session’s standout performers after executives pointed to strong booking trends as travellers rush to lock in fares ahead of potential fuel-driven price increases. Elsewhere, Nvidia said it is ramping up production of H200 AI accelerators for Chinese customers, while Qualcomm announced a US$20 billion share buyback and a dividend increase. Boeing flagged a string of performance issues likely to weigh on first-quarter results, including fewer widebody deliveries and wiring defects on the 737 Max. Eli Lilly slipped after HSBC turned bearish, suggesting investor expectations for weight-loss drugs are stretched.
The Fed is widely expected to keep the federal funds rate on hold in the 3.5% to 3.75% range. The key question is how policymakers frame their response to a conflict that is pulling their dual mandate in opposite directions, with oil pushing up inflation while threatening to cool economic activity. Macquarie expects no further cuts and sees the next move as a hike, while Oxford Economics is sticking with a call for 50 basis points of easing later this year.
Europe
European equities posted broad-based gains on Tuesday, with the Stoxx 600 climbing 0.7% as oil pulled back from session highs and traders pared expectations for interest rate hikes.
Energy stocks were again the dominant force, rising 2.3% for an eighth consecutive session as Iran continued its attacks on oil and gas infrastructure across the Middle East. Polish refiner Orlen surged 5% to a record close, while Finnish group Neste jumped 5.9% following an upgrade. Utilities also performed strongly, adding 1.6%, with Enel, E.On and Fortum all rising sharply. Insurers matched that gain, led by Hannover Re and Swiss Re, and financials climbed 1.3%.
Banks advanced 0.9% as senior executives from Deutsche Bank, UBS and Societe Generale sought to reassure investors about their exposure to private credit amid growing concerns over underwriting standards. BNP Paribas rose 1.2% after outlining targets for inflows following its acquisition of AXA’s investment arm. Telecoms gained 1.1%, with Telecom Italia up 3% and Airtel Africa surging 5.4% to a record.
On the downside, media stocks fell 1.4%, dragged lower by Universal Music Group after a downgrade. Consumer products dropped 0.7%, while retail slipped 0.3%. Lab equipment maker Sartorius was the session’s top performer after setting reassuring medium-term targets, while hearing aid group Amplifon tumbled 10.6% on a fresh price target cut. Defence names lagged within the industrials sector as investors appeared reluctant to add at lofty valuations.
Australia
Australian shares are poised for a modestly higher open on Wednesday, with S&P/ASX 200 futures up 0.1% to 8,669 near 7am AEDT. The benchmark closed 0.4% higher at 8,614.30 on Tuesday, supported by gains in mining stocks and a market-friendly interpretation of the Reserve Bank’s latest rate decision.
The RBA delivered a widely anticipated back-to-back rate hike on Tuesday, lifting the cash rate 25 basis points to 4.10%, but the five-to-four split among board members helped support equities. Traders took the lack of consensus as a sign the tightening cycle may be nearing its end, or at least that the bar for further hikes is rising.
Corporate news is headlined by two major leadership changes. BHP has appointed Brandon Craig as its next chief executive from July 1, replacing Mike Henry after six and a half years. Craig currently leads BHP’s Americas division. Woodside Energy has formalised Liz Westcott’s appointment as CEO and managing director after she served as acting chief since December.
Macquarie Group features prominently in the news flow. The investment bank has withdrawn from the bidding process for a stake in Kuwait’s oil pipeline network, valued at up to US$7 billion, citing the conflict and uncertain outlook. Separately, Macquarie is set to acquire CDPQ’s India InvIT stake for US$350 million, and Fibra Prologis shareholders have approved Macquarie’s bid.
Sims Limited issued upbeat guidance, flagging fiscal year EBIT of $350 million to $400 million on the back of strong non-ferrous metal prices and buoyant memory chip markets. In broker action, Goldman Sachs cut ANZ to neutral and Bell Potter upgraded New Hope to hold. BHP ADRs edged up 0.2% overnight, while Rio Tinto ADRs dipped 0.1%. ARN Media terminated its contract with Kyle Sandilands, ending the Kyle and Jackie O Show.
Bond yields eased, with the three-year falling 4.4 basis points to 4.55% and the ten-year dropping 6.2 basis points to 4.94%.
Commodities and Currencies
Oil prices surged again as the Middle East conflict escalated, with Iranian drones striking energy facilities in the UAE and Iraq. Brent crude jumped 3.5% to US$103.75 a barrel, while West Texas Intermediate climbed 2.9% to US$96.21. The near closure of the Strait of Hormuz continues to roil energy markets, with longer-dated oil contracts also pushing higher.
Gold was essentially flat at US$4,999.52 an ounce as traders weighed inflation risks against the prospect of an oil-supply shock. Iron ore rose 1.2% to US$108.80 a tonne, while copper edged lower as London Metal Exchange stockpiles surged to their highest level in more than six years.
The Australian dollar cracked US71 cents following the RBA’s rate decision, rising 0.4% to 71.03 US cents. The greenback weakened broadly, with the euro gaining 0.3% to US$1.1535 and the yen little changed at 159.01 per dollar. Bitcoin edged up 0.3% to US$74,477.
Economic Calendar
EU:
- CPI YoY, MoM 21:00
AU:
- Westpac Leading Index MoM 10:30
US:
- MBA Mortgage Applications 22:00
- PPI Final Demand MoM 23:30
- Factory Orders 01:00
- Durable Goods Orders 01:00
- FOMC Rate Decision 05:00
This article was written by Calvin Curdie, Rivkin Securities Pty Ltd. Enquiries can be made via [email protected] or by phoning +612 8302 3632.
