Markets Overview
- ASX SPI 200 futures little changed at 8,542.00
- S&P 500 down 0.3% to 6,606.47
- Dow Average down 0.4% to 46,034.67
- Aussie up 0.9% to 0.7086 per US$
- US 10-year yield fell 1.5bps to 4.2513%
- Australia 3-year bond yield rose 11 bps to 4.62%
- Australia 10-year bond yield rose 7.9 bps to 4.98%
- Gold spot down 3.5% to $4,647.78
- Brent futures up 0.2% to $107.63/bbl
Economic Events
Volatility eased across asset classes as oil’s early surge petered out, with stocks and bonds bouncing from session lows after Israel said it’s helping the US open the vital Strait of Hormuz.
The S&P 500 pared most of a 1% drop. US oil fell to $95 in post-settlement trading. Israeli Prime Minister Benjamin Netanyahu said Iran is no longer able to enrich uranium or manufacture ballistic missiles, adding the war will end a lot faster than people think. The US authorized the delivery and sale of some Russian crude. In late hours, FedEx Corp. gave a bullish outlook.
Treasuries rebounded from their worst point of the session after a rout driven by worries major central banks will be forced to tighten policy to keep price pressures in check. Across the Atlantic, Britain’s short-term yields jumped as the Bank of England “stands ready to act” against inflation.
Traders are parsing every geopolitical headline for indications on how long the war in Iran will last and whether tensions will continue to escalate from here.
Three weeks of conflict have upended the entire energy supply chain. With the Strait of Hormuz all but closed, gasoline and jet fuel prices are surging, cooking gas shortages are triggering fistfights in India and farmers are fretting about diesel and fertilizers.
“All the near-term action depends on the Strait opening,” said Scott Wren at Wells Fargo Investment Institute. “We think it opens in a matter of weeks, not months.”
Treasury Secretary Scott Bessent noted the US is looking to remove sanctions that it has long imposed on Iranian oil in an effort to lower surging energy prices triggered by the war. The White House doesn’t plan to ban the export of oil and gas, a Trump administration official said Thursday.
The duration of still elevated oil prices is exactly what the market is trying to figure out, and that’s why there is volatility, said Dennis Follmer at Montis Financial.
Wall Street is bracing for a large tally of options expiring Friday, which risks causing even more volatility. Roughly $5.7 trillion in notional options tied to individual US stocks, indexes and exchange-traded funds are due, according to Citigroup Inc., in the quarterly “triple-witching” event.
Iran maintained attacks on energy assets even after US President Donald Trump called for restraint. Complacent investors who assume there will be a swift resolution to the war are making a high-risk bet given how bad surging oil prices typically end up being for stocks, according to JPMorgan Chase & Co.’s Dubravko Lakos-Bujas.
“While a less damaging outcome in the Strait of Hormuz remains possible, recent events have narrowed that path and heightened the risk of continued volatility,” said Ulrike Hoffmann-Burchardi at UBS Global Wealth Management.
While the S&P 500 bounced into the close, it was not able to finish above the key 200-day moving average.
Sentiment is likely still leaning negative, with more downside in store, according to Wren at Wells Fargo Investment Institute.
“We see a pullback in the 7-10% range from the record high as a good opportunity to step in,” he concluded.
