Source : THE AGE NEWS
The Australian sharemarket extended its gains when it opened for trading, following global markets higher, as oil prices eased amid optimism the US and Iran will meet for a second round of talks over the coming days to end their war and avoid a worst-case scenario for the global economy.
The S&P/ASX 200 rose 0.3 per cent within 10 minutes of opening, adding to its 0.5 per cent advance on Tuesday. It was trading up 18 points, or 0.2 per cent, to 8988.80 as of 11.18am AEST. The Australian dollar was trading at US71.27¢ at the same time.
Virgin Australia’s stock jumped 6.8 per cent after the airline said higher fuel costs as a result of the Iran war have largely been “mitigated through effective fuel hedging and recent airfare and capacity adjustments” and left its earnings forecasts unchanged.
Its assurance comes a day after larger rival Qantas flagged an $800 million blow-out in fuel costs linked to the conflict in the Middle East, which would weigh on its profits. Virgin said its exposure to unhedged crude and refining margins will see fuel costs rise by $30 million to $40 million, far less than its rival’s. The airline said it will slightly reduce its flights over coming months to contain costs.
Gold miner Evolution Mining also rallied in early trade, up 7 per cent, after its reported high-margin cash flows in the March quarter supported by elevated gold prices. Other miners were steady in early trade. Gold held its gains on optimism that the US and Iran are seeking a settlement to the war, easing inflation concerns arising from an energy-supply shock. Bullion was near $US4,840 an ounce in early trading, after rising 2.1 per cent in the previous session.
The Commonwealth Bank and National Australia Bank rose slightly, up 0.3 per cent and 0.9 per cent, while Westpac slipped 0.5 per cent and ANZ Bank was flat.
Energy companies were lower in morning trade as oil prices eased, with oil and gas giants Woodside and Santos down 3 per cent and 2.6 per cent, respectively. Brent crude steadied above $US94 a barrel after losing nearly 5 per cent on Tuesday, while West Texas Intermediate was near $US90. While that’s still above its roughly $US70 price from before the war began in late February, it’s well below the $US119 peak oil prices have hit when worries about the war have been at their heights.
Overnight on Wall Street, US stocks traded near an all-time high. The S&P 500 added 1.2 per cent to its leap from the day before, and is just 0.2 per cent below its record set in January. The Dow Jones Industrial Average rose 0.7 per cent, and the Nasdaq composite climbed 2 per cent.
That followed gains for stock markets worldwide as diplomats worked through back channels to arrange a new round of talks between the United States and Iran. Such prospects also helped lower the price of oil, whose production and transportation has been snarled by the fighting.
Indexes rose across much of Europe and Asia. South Korea’s Kospi jumped 2.7 per cent, and Japan’s Nikkei 225 rose 2.4 per cent for two of the bigger gains.
“It’s not about whether there is progress in the peace talks, it’s about whether we can reasonably hope that there might be progress in the peace talks,” said Steve Sosnick, chief strategist at Interactive Brokers. “Vibes are more powerful than reality.”
Trump said talks could resume “over the next two days” in Pakistan, the New York Post reported. That would build on a marathon yet inconclusive session in Islamabad on Saturday night. In the meantime, the US is pressing ahead with a naval blockade of Hormuz to curb the Islamic Republic’s oil exports, as the battle for control of the strategic waterway intensifies.
If talks succeed and the Iran war ends up being only a temporary setback for the global economy, rather than a new normal of very high oil prices and inflation, financial markets can turn their attention back to rising profits for companies and growth for economies.
To be sure, hope has often quickly swung into doubt in financial markets since the war began, which has caused extreme and sudden reversals. Much of the stress has been due to the Strait of Hormuz, a narrow waterway that’s the main avenue for crude oil produced in the Persian Gulf area to reach customers worldwide. Blockages there have kept oil off the global market, which has in turn driven up its price.
Global inflation this year looks set to accelerate to 4.4 per cent from 4.1 per cent in 2025, according to the International Monetary Fund, which had earlier thought inflation would slow to 3.8 per cent.
The IMF on Tuesday also downgraded its forecast for global economic growth to 3.1 per cent this year from the 3.3 per cent it had forecast in January.
On Wall Street, strong profit reports from several companies and expectations for more helped make up for such worries.
So much optimism is in the strength of corporate America’s earnings power that analysts have even raised their estimates for S&P 500 profit over the first six months of the year since the end of February, according to Morgan Stanley.
Amazon climbed 3.8 per cent after saying it would buy Globalstar, a mobile satellite services company, for $US90 per share in either cash or Amazon stock. Globalstar jumped 9.7 per cent.
In the bond market, Treasury yields eased as the fall for oil prices took some of the pressure off inflation. The yield on the 10-year Treasury fell to 4.25 per cent from 4.30 per cent late on Monday.
with AP, Bloomberg
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