Markets Overview

  • ASX SPI 200 futures down 1.2% to 8,929.00
  • S&P 500 down 0.8% to 6,826.82
  • Dow Average down 0.6% to 48,604.29
  • Aussie down 0.7% to 0.7043 per US$
  • US 10-year yield little changed at 4.0440%
  • Australia 3-year bond yield rose 15 bps to 4.34%
  • Australia 10-year bond yield rose 14 bps to 4.77%
  • Gold spot down 4.0% to $5,108.69
  • Brent futures up 3.1% to $80.18/bbl

Economic Events

  • 09:00: (AU) Feb. S&P Global Australia PMI Compo, prior 52.0
  • 09:00: (AU) Feb. S&P Global Australia PMI Servi, prior 52.2
  • 11:00: (AU) Australia to Sell A$900 Million 4.75% 2037 Bonds on March 4
  • 11:30: (AU) 4Q GDP YoY, est. 2.3%, prior 2.1%
  • 11:30: (AU) 4Q GDP SA QoQ, est. 0.8%, prior 0.4%

Australia’s economy likely grew at a moderate pace in the fourth quarter. GDP is expected to rise 0.5% from the previous quarter on a seasonally adjusted basis, compared to 0.4% expansion in 3Q, according to Bloomberg Economics.

A selloff in stocks and bonds was trimmed as assurances on American action to secure shipping lanes through the Strait of Hormuz amid the Iran war pared what had been an over 9% surge in oil.

Following an earlier slide in the S&P 500 that reached 2.5%, the equity benchmark dropped less than 1%. President Donald Trump said the US will escort and insure tankers and other vessels through the world’s most-critical energy chokepoint. Oil prices waned in post-settlement trading, with Brent trading near $80 a barrel.

“No matter what, the United States will ensure the FREE FLOW of ENERGY to the WORLD,” Trump posted on social media.

The latest development helped reduce fears of a major global supply shock, easing inflation jitters while fading a surge in Treasury yields, according to Adam Turnquist at LPL Financial.

“For now, markets are trading headline to headline,” said Fawad Razaqzada at Forex.com. “Much will depend on whether tensions stabilize — or whether this proves to be the start of a more prolonged disruption to global supply.”

The war in the Middle East reverberated across the region, with Israel bombarding Tehran in a fresh wave of strikes. The Islamic Republic fired missiles at Qatar, Bahrain and Oman, with Doha saying targets weren’t limited to military interests. Qatar and Iraq halted production at major energy sites.

With the conflict disrupting shipments, fuel costs have been on the rise. A sustained surge in prices for diesel — used in freight, power and heating — could add to the cost of transportation — a key inflation component. Gasoline has also surged, intensifying those risks.

The Dow Jones Industrial Average lost almost 1,300 points before paring its slide to around 400 points. The yield on 10-year Treasuries rose three basis points to 4.06%. The dollar added 0.6%.

The choppy trading and wide intraday ranges show investors are struggling to price in the risks from the conflict in Iran, according to Will Compernolle at FHN Financial.

“You do have to let these things settle, and it could take a couple of weeks,” said Nancy Tengler at Laffer Tengler Investments. “I don’t think this is the beginning of a bear market.”

Barring a prolonged disruption of oil supplies, the conflict is unlikely to end the cyclical stock bull market by itself, according to Ed Clissold and Thanh Nguyen at Ned Davis Research, which has tracked crisis events for decades.

While there’s a prevailing fear that a significant oil spike could trigger a recession, history suggests that’s not a foregone conclusion, said Jeffrey Yale Rubin at Birinyi Associates Inc. Since 1989, there have been several instances when crude prices doubled without forcing the economy into a downturn, he noted.

Generally speaking, military actions cause a short-term disruption in markets, but as long as the economic damage is limited, they fully recover once there is more clarity in the scope of the intervention, according to Chris Zaccarelli at Northlight Asset Management.

“It is too soon to tell how events will unfold this month, but we are looking for opportunities to present themselves if traders overreact and throw the baby out with the bathwater,” he said.