The Australian sharemarket faces renewed uncertainty as escalating tensions between the US and Iran threaten global stability. US President Donald Trump’s threats of missile strikes, coupled with Tehran’s declaration to close the critical Strait of Hormuz indefinitely, have overshadowed earlier Wall Street gains. Prior to the Middle East flare-up, ASX futures had pointed to a solid 0.5 per cent advance for the S&P/ASX 200 Index, following robust performance from Wall Street, partly driven by a strong debut from South Korean chipmaker SK Hynix.
The latest escalation saw Trump order a third round of strikes, targeting Iran’s ability to attack commercial vessels in the strait after a Cypriot-flagged container ship was struck last week. In response, the Islamic Revolutionary Guard Corps announced the closure of the Strait of Hormuz, a vital maritime choke point through which approximately 20 per cent of the world’s energy supply typically passes. This development casts doubt on a longer-lasting peace deal that markets had been anticipating. Despite the heightened risks, AMP economist My Bui noted that markets initially seemed to believe “the worst of the war is behind us,” with Brent crude futures easing to around $US76 a barrel on Friday amid ongoing US-Iran talks.
However, the fragility of the geopolitical situation remains a concern, particularly regarding supply risks for oil as reserves have somewhat diminished. VanEck’s head of Asia Pacific, Arian Neiron, suggested investors are increasingly focused on the significant capital earmarked for artificial intelligence rather than the immediate Middle East flare-up, indicating a market priced on optimism. Elsewhere, gold prices fell as renewed fighting heightened expectations for the US Federal Reserve to potentially raise interest rates to counter inflationary pressures. This week, markets will closely monitor Fed chairman Kevin Warsh’s appearance before Congress and upcoming US inflation data, while second-quarter earnings season kicks off with investment banking giants Goldman Sachs and JPMorgan, followed by Australian mining heavyweights Rio Tinto and BHP.
