The Australian sharemarket is bracing for another heavy sell-off following escalating tensions in the Middle East. US President Donald Trump’s ultimatum to Iran has heightened concerns about a potential surge in oil prices and increased the likelihood of US interest rate hikes. Trump’s comments on his Truth Social platform warned of obliterating Iranian power plants if the Strait of Hormuz was not fully opened within 48 hours.
The Strait of Hormuz, a critical waterway for approximately 20 per cent of the world’s oil supply, has been effectively closed since the conflict began last month. This closure has already caused oil prices to soar by over 50 per cent, raising fears of accelerating global inflation. Stephen Miller, an investment strategy advisor at GSFM in Sydney, noted the market’s sensitivity to Trump’s pronouncements, highlighting a spike in US bond yields.
More than $280 billion has been wiped from the ASX since the initial strikes on Iran three weeks ago. Futures for the S&P/ASX 200 Index are pointing to a significant drop. The mining sector, particularly gold stocks, is expected to be a key focus, as the prospect of higher rates diminishes gold’s appeal. AMP’s chief economist, Shane Oliver, suggests equities are at “high risk” of further selling amid stretched valuations and geopolitical uncertainty.
This week, markets will closely monitor business surveys from the US and the Eurozone for early indications of the oil shock’s impact on economic activity. Australia’s monthly inflation report is also due, with expectations that the consumer price index will remain elevated. ANZ has warned of a sharp spike in inflation for March due to rising fuel prices linked to the Iran war.
