Source : THE AGE NEWS
The Australian sharemarket opened lower on Monday after the US and Iran’s failure to strike a peace deal, which sent oil prices soaring again and reignited fears for the global economy if the war drags on and escalates, with US President Donald Trump vowing to blockade the Strait of Hormuz.
The S&P/ASX 200 fell 28.30 points, or 0.3 per cent, to 8932.30 by 10.58am AEST, with nine of its 11 industry sectors declining, while energy stocks jumped. The local bourse had gained 4.4 per cent last week, its best week since late 2022, amid hopes the war may be coming to an end. The Aussie dollar fell 0.5 per cent to US70.33¢, and US sharemarket futures slid 0.9 per cent.
“Trump’s move to announce a naval blockade of the Strait of Hormuz is set to reignite risk aversion this week,” Elias Haddad, the global head of markets strategy at Wall Street investment firm Brown Brothers Harriman & Co, had predicted before the start of trading.
“Crude oil prices are likely to retrace some of last week’s ceasefire-induced decline, while the potential for an increase in tensions with China, a significant buyer of Iranian oil, can add to market unease.”
The key materials and financial sectors, which when combined make up more than half of the ASX, were both falling as investors digested the news. Gold miners weighed down materials, with gold prices tumbling as much as 2.2 per cent on mounting concerns about inflation if Trump’s plans to blockade the important oil shipping route deepen the global energy-supply shock. Northern Star Resources lost 4.2 per cent, Evolution Mining plunged 4.5 per cent and Newmont shed 1.5 per cent.
The big four banks were also trading lower. CBA, the nation’s biggest bank, was down 0.3 per cent, Westpac lost 0.8 per cent, National Australia Bank shed 1.3 per cent and ANZ Bank fell 0.7 per cent.
Tech stocks tumbled, with software makers WiseTech Global and Xero down 2.5 per cent and 2.6 per cent, respectively. Family member tracking app Life 360 dived 9.2 per cent.
Brambles fell 1.1 per cent after the Federal Court on Friday found the logistics giant failed to keep investors informed about its true financial position, which exposed the company to compensation claims.
Dairy company A2 Milk plummeted 16.5 per cent after the infant formula maker slashed its sales and earnings forecasts, citing supply chain disruptions – partly linked to the Iran war – that have slowed shipments to China.
Oil stocks were the only clear winners in early trade after Brent crude, the global benchmark, surged almost 8 per cent on Monday morning and European natural gas futures jumped as much as 17 per cent in early trading. Oil and gas producers Woodside and Santos climbed 3 per cent and 2.2 per cent, respectively, while refiners Ampol and Viva Energy gained 2.4 per cent and 4.6 per cent, respectively.
Oil futures had ended last week 30 per cent above where they were before the war, while traders are paying record amounts north of $US140 a barrel for real-world cargoes as they scramble for supplies.
Trump said the US would begin a full naval blockade of the strategic Strait of Hormuz and threatened to retaliate in the event of Iranian resistance, escalating a stand-off that has already brought the waterway to a near standstill and disrupted global energy supplies.
The president’s announcement came hours after the US and Iran failed to reach a deal in direct talks in Pakistan, jeopardising hopes of turning a fragile ceasefire into a lasting end to a war that has claimed thousands of lives.
The negotiations collapsed because of differences over the nuclear issue, Trump said in a Truth Social posting on Sunday.
“Effective immediately, the United States Navy, the Finest in the World, will begin the process of BLOCKADING any and all Ships trying to enter, or leave, the Strait of Hormuz,” he said. “Any Iranian who fires at us, or at peaceful vessels, will be BLOWN TO HELL!”
The failure of the US and Iran to reach a peace deal, along with Trump’s threats, leaves the ceasefire clinched last week in limbo. Trump said the US would interdict any vessel that had paid a toll to Iran for safe passage through Hormuz and would clear mines in the strait, through which about one-fifth of global oil and liquefied natural gas flowed before the war.
On Wall Street, the S&P 500 inched 0.1 per cent lower on Friday after a day of choppy trading as investors were waiting for the outcome of the peace talks. The Dow Jones Industrial Average fell 0.6 per cent and the Nasdaq composite rose 0.4 per cent.
The major indexes each notched a weekly gain for the second week in a row. They have been gaining ground this month amid optimism that the war with Iran could be heading toward a resolution.
The benchmark S&P 500 has erased most of its losses from March and is just 2.3 per cent short of its all-time high set in January. The market is still prone to big swings on developments around the war.
Oil prices have been behind many of the stock market’s sharp movements. They have risen sharply as shipping through the vital Strait of Hormuz essentially stalled since the war began. Brent crude oil has gone from roughly $US70 per barrel before the war in late February to more than $US119 at times.
The war in the Middle East was behind surging inflation in the US in March. The American government reported the biggest spike in inflation in four years as prices at the petrol bowser jumped. The inflation increase was just short of what economists expected.
Bond yields rose a bit following the latest inflation update. The yield on the 10-year Treasury climbed to 4.32 per cent on Friday from 4.29 per cent late on Thursday.
Inflation has been a lingering concern for economists. Prices on a range of consumer goods and services are already stubbornly high, in part from the impact of extensive global tariffs. Higher gas prices are immediately felt by drivers at the pump, but they could eventually raise prices on everything from food to airfare as companies pass along higher costs for shipping and fuel.
US consumer sentiment slumped 10.7 per cent in April, according to a closely watched monthly survey from the University of Michigan. The survey also shows that consumers are growing more worried about inflation, with year-ahead expectations surging to 4.8 per cent in April from 3.8 per cent in March.
Inflation remains a major concern for the Federal Reserve, which has signalled more caution amid worries about inflation reheating. The rate of inflation remains above the central bank’s 2 per cent target. The threat of rising inflation will likely mean the central bank continues to hold interest rates steady. Several Fed officials have also said a rate hike might be needed if inflation doesn’t cool.
Lower interest rates help boost stocks and other investments by lowering borrowing costs. Interest rate cuts also risk worsening inflation.
Most companies in the S&P 500 lost ground on Friday, with health care and financial company stocks driving much of the decline. Eli Lilly fell 1.6 per cent and Charles Schwab closed 2.5 per cent lower. Technology stocks with hefty values helped offset losses elsewhere. Nvidia rose 2.6 per cent and Broadcom rose 4.7 per cent.
In other international markets, markets in Asia gained ground while markets in Europe were mixed.
