Source : THE AGE NEWS
By Frances Howe
The Australian sharemarket remained lower around midday after Wall Street slumped overnight as investors track developments in the escalating conflict in the Middle East, with mounting speculation that the US is on the verge of joining Israel’s attack on Iran.
The S&P/ASX 200 slipped 2.9 points, or 0.03 per cent, to 8538.40 as of 12.16pm AEST, pushed down by the dominant mining and financial sectors, with three of the 11 industry sectors in the red. The cautious start to the day comes after the local market treaded water over the past two sessions. The Australian dollar declined overnight but edged up 0.1 per cent to 64.83 US cents just after midday.
Wall Street retreated across the board.Credit: AP
The declines on the ASX were led by the mining giants, with iron ore heavyweights BHP dropping 1.4 per cent and Rio Tinto by 0.6 per cent and Fortescue by 4.3 per cent at lunchtime. They were weighed down by a 1.2 per cent fall in prices for the steelmaking material overnight.
Most of the big four banks were also weaker amid concerns about the jump in oil prices amid the Middle East crisis, which could step up inflation and slow economic growth. CBA, the biggest stock on the ASX, shed 0.2 per cent on opening but gained 0.3 per cent just after midday. National Australia Bank and Westpac both dropped slightly, while ANZ lost 1 per cent.
West Texas Intermediate crude rose as much as 1.1 per cent in early trading on Wednesday after settling at the highest in almost five months the previous day as concerns mounted that the escalation of tensions will trigger a more direct US involvement.
On the benefiting end of the rising oil price were energy stocks. Oil and gas giant Woodside dropped 0.19 per cent at lunch time after opening higher, and its rival Santos – which on Monday received a $30 billion takeover bid from Abu Dhabi’s national oil company and US global private equity firm Carlyle – climbed 0.3 per cent. Ampol, the nation’s biggest refiner, added 3 per cent.
On Wall Street overnight, the S&P 500 fell 0.8 per cent following signals that the Israel-Iran conflict may be worsening and that one of the US economy’s main engines is weakening. The Dow Jones dropped 0.7 per cent, and the Nasdaq composite fell 0.9 per cent.
Their declines accelerated after President Donald Trump raised the temperature on Israel’s fight with Iran by calling for “UNCONDITIONAL SURRENDER!” on his social media platform and saying, “We are not going to” kill Iran’s leader, “at least for now.”
Before that, Trump had left a Group of Seven summit early and warned that people in Iran’s capital should evacuate immediately. It took only about eight hours for Trump to go from suggesting a nuclear deal with Iran remained “achievable” to urging Tehran’s 9.5 million residents to flee for their lives.
The fighting has the potential to drive up prices for crude oil and petrol because Iran is a major producer of oil, and it sits on the narrow Strait of Hormuz, through which much of the world’s crude passes. Past conflicts in the area have caused spikes in oil prices, though they’ve historically proven to be only temporary after showing that they did not disrupt the flow of oil.
Treasury yields also fell in the bond market after a report said US shoppers spent less last month than the month before and fell short of economist expectations. Solid spending has been one of the linchpins keeping the US economy out of a recession, but part of May’s drop may have simply been a return to more normal trends.
In April, some shoppers had rushed to buy automobiles to get ahead of Trump’s tariffs.
“Today’s data suggests consumers are downshifting, but they haven’t yet slammed the brakes,” according to Ellen Zentner, chief economic strategist for Morgan Stanley Wealth Management
Verve Therapeutics soared 81.5 per cent after Eli Lilly said it would buy the company developing genetic medicines for cardiovascular disease in a $US1 billion ($1.5 billion) deal that could be worth up to $US1.3 billion if certain conditions are met. Lilly’s stock fell 2 per cent.
All the action took place as the Federal Reserve began a two-day meeting on interest rates. The nearly unanimous expectation among traders and economists is that the Fed will make no move.
The Fed has been hesitant to lower interest rates, and it’s been on hold this year after cutting at the end of last year because it’s waiting to see how much Trump’s tariffs will hurt the economy and raise inflation. Inflation has remained relatively tame recently, and it’s near the Fed’s target of 2 per cent.
More important for financial markets on Wednesday will likely be the latest set of forecasts that Fed officials will publish for where they see the economy and interest rates heading in upcoming years.
In the bond market, the yield on the 10-year Treasury eased to 4.38 per cent from 4.46 per cent late on Monday.
In other international sharemarkets, indexes fell across much of Europe after finishing mixed in Asia.
Tokyo’s Nikkei 225 index rose 0.6 per cent after the Bank of Japan opted to keep its key interest rate unchanged. It’s been gradually raising its rate from near zero and cutting back on its purchases of Japanese government bonds to help counter inflation.
with AP, Bloomberg
