Australian investors are bracing for a challenging corporate confession season next week, driven by the escalating Middle East conflict and the Trump administration’s stance on Iran. This environment impacts company earnings and heightens domestic interest rate rise likelihood. According to UBS, over 21 companies, including major airlines, banks, engineering giant Worley, and hearing implant company Cochlear, have already referenced the conflict in trading updates. The prolonged shutdown of the Strait of Hormuz, a critical waterway for one-fifth of global oil flow, has pushed Brent crude prices up 25 per cent since late February, trading around US$112 a barrel.
Westpac’s commodity strategist, Robert Rennie, warned “real-economy fuel costs are likely to continue rising and stay elevated for much longer.” This intensifies Australia’s inflation problem, leading Westpac, Deutsche Bank, UBS, and HSBC to forecast another Reserve Bank of Australia interest rate hike next week. Inflation hit 3.5 per cent to March, above the RBA’s 2.5 per cent target. A third rate rise would lift the cash rate to 4.35 per cent, contrasting with steady global rates. The S&P/ASX 200 Index has consequently underperformed, gaining just 0.5 per cent year-to-date, significantly lagging global indices. Wilson Asset Management strategist Damien Boey noted the ASX has been a “laggard” due to numerous headwinds.
The upcoming confession season will highlight vulnerabilities, particularly in retail. Glenmore Asset Management founder Robert Gregory cited “higher interest rates, higher petrol prices and cost-of-living issues” affecting consumer spending, with home furnishing retailers like Adairs and Nick Scali, and jeweller Lovisa, under scrutiny. Private equity firms are exploiting market “skittishness,” with recent bids for Atlas Arteria, a toll road operator, and oOh!media, an outdoor advertising company. Solaris Investment Management’s Charles Story cautioned about potential short-to-medium term market sell-offs, as the ASX trades at 17 times earnings, above its 15 times long-term average. While lithium and rare earths benefit, the outlook for ASX-listed gold companies is challenging due to margin compression.
