The Australian sharemarket is expected to decline on Monday as escalating conflict in the Middle East, involving Iranian-backed Houthi rebels, threatens to elevate global oil prices and interest rates. Houthi militants in Yemen launched attacks on Israel, an intervention seen by analysts as widening the war and likely to further disrupt global trade and financial markets. This intervention follows Iran’s disruption of the Strait of Hormuz, a critical passage for global oil supply.
The disruption has already caused Brent crude prices, the global oil benchmark, to surge from approximately $US70 a barrel to over $US100 a barrel, raising concerns about accelerating global inflation. The Australian government is responding by overhauling export finance laws to enhance fuel security, following cancellations of fuel shipments from Asia which have resulted in localised shortages. Australia relies on imports for 90 per cent of its fuel needs.
National Australia Bank anticipates a fall in risk assets like shares and the Australian dollar, alongside rising oil prices. Commonwealth Bank of Australia has revised its growth forecast, increased inflation projections, and now anticipates two rate rises by Christmas. The bank expects Brent crude to remain around $US120 a barrel until June, leading to annual consumer price inflation peaking at 5.4 per cent in the second quarter.
Traders currently estimate a 75 per cent probability of the Reserve Bank of Australia increasing the cash rate in May to 4.35 per cent, with expectations of two rate rises by Christmas. Investors will closely examine the minutes from the RBA’s February meeting this week for insights into the decision to raise the cash rate to 4.1 per cent.
