Global Markets Brace for Impact as Iran Conflict Intensifies
Australian investors are bracing for a volatile session as futures point to a significant drop in the ASX 200. The market is signalling a sharp decline of 156 points, a 1.79% fall, as of 8:30 am AEDT. This downturn is largely attributed to the escalating conflict in Iran, which is stoking renewed inflation fears and a pervasive “risk-off” sentiment across global financial markets.
Major United States benchmarks experienced steep weekly declines, mirroring the broader unease. This sentiment was amplified by a dramatic surge in West Texas Intermediate (WTI) crude oil prices, which saw an approximately 35% increase last week – the most substantial weekly jump since the early days of the pandemic.
The geopolitical tensions are manifesting in direct military actions, with the United States and Israel reportedly conducting strikes within Iran. Simultaneously, former President Trump has issued demands for Iran’s “unconditional surrender.” In response, Iran has reportedly targeted key desalination plants in the Middle East, and traffic through the vital Strait of Hormuz has ground to a near standstill.
Overnight Market Recap: A Sea of Red, Fueled by Oil
The overnight session saw major US benchmarks finish near their lowest points. The S&P 500 closed down 1.33%, the Dow Jones fell 0.94%, the NASDAQ Composite saw a 1.59% dip, and the Russell 2000 registered a more significant 2.33% decline.
S&P 500 lower, finished near worst levels.
The dominant story in commodities was the meteoric rise of WTI crude oil, which surged by a staggering 15.7% to US$91 per barrel, reaching its highest level since September 2023. This surge was driven by warnings from Qatar that all Gulf producers might be forced to curtail production due to the effective closure of the Strait of Hormuz.
In corporate news, several companies are set to join the S&P 500 on March 23rd: Vertiv, Lumentum, Coherent, and EchoStar will replace Match, Molina Healthcare, Lamb Weston, and Paycom. Traders have been actively piling into energy and commodity options, while implied volatility has climbed to exceptionally high levels.
Energy Sector Under Pressure Amidst Supply Disruptions
The conflict in Iran has sent shockwaves through critical energy market flows, pushing US oil futures above US$92 a barrel. Oil traders are now speculating that crude prices could breach the US$100 mark within days if hostilities do not de-escalate. While some oil options suggest the market believes the current shock may be short-lived, the reality on the ground paints a different picture.
Kuwait Petroleum has declared force majeure and announced a cut in its crude oil output, though the exact volume reduction has not been disclosed. Amidst the turmoil, a second bulk carrier, reported to be Chinese-owned, has successfully navigated through the Strait of Hormuz.
The impact on consumer prices is already evident, with US gasoline prices climbing 11% week-on-week as of Friday, further exacerbated by seasonal factors. The disruption to oil supplies has been severe, with Iraq’s oil output plummeting by approximately 60% to 1.7-1.8 million barrels per day, down from 4.3 million barrels per day before the conflict.
Analysts are warning that there may be no short-term ceiling for oil prices, given the declining output, infrastructure risks, and the ongoing blockade of the Strait of Hormuz. The Iran conflict is estimated to be disrupting around 20% of global crude and natural gas supply, with recovery potentially taking months. In response, the US Development Finance Corporation is establishing a US$20 billion reinsurance facility for Gulf shipping. Meanwhile, India’s largest private refiner is reportedly pivoting back to Russian oil, leveraging a US waiver. Maritime traffic in the Strait of Hormuz has been nearly halted, with no oil shipments recorded in the past 24 hours. This surge in oil prices is on track for its steepest weekly gain since the Russian invasion of Ukraine in 2022.
Stock Market Mixed Bag: Tech Resilience, Corporate Woes
While the energy sector faces turbulence, other areas of the stock market show varied reactions. Samsung is reportedly open to strategic cooperation with more artificial intelligence (AI) groups as it seeks to challenge Apple’s dominance in the smartphone market.
Two prominent AI platforms, Kalshi and Polymarket, are seeking valuations of around US$20 billion, nearly double their worth a year ago. Saudi Aramco shares have seen their most significant surge in nearly three years, driven by the escalating oil prices.
However, not all sectors are faring well. SK Battery America has laid off 958 employees, or 37% of its workforce, at its Georgia plant. Anthropic’s CEO, Amodei, has vowed legal challenges against AI usage restrictions, though he downplays the potential business impact. Microsoft, meanwhile, plans to continue using Anthropic AI in its products for non-Defense clients, despite concerns about supply chain risks flagged by the Pentagon.
Marvell has forecast strong fiscal 2028 revenue driven by the AI data centre boom, leading to a 15% surge in its shares. Costco’s quarterly profit exceeded expectations, bolstered by membership fees and market share gains. Conversely, Gap is forecasting annual profits below estimates, citing tariffs and cautious consumer spending.
Tariffs and Central Bank Tightrope Walk
The recent Supreme Court ruling on tariffs has companies scrambling to accelerate shipments, ramp up production, and revise pricing strategies. The potential total for Trump-era tariff refunds could reach US$182 billion following this ruling.
Central banks are navigating a complex landscape. Investors are trimming their expectations for interest rate cuts, and economists are warning that stagflationary trends could complicate the US Federal Reserve’s rate path. The Bank of England faces the risk of an oil price shock, which could reignite inflation expectations and fuel wage demands. The European Central Bank’s efforts to project an image of calm amidst the war and inflation are being tested, as markets are now pricing in a rate hike this year.
Iran: A Protracted Conflict with Significant Costs
The conflict in Iran shows no signs of a swift resolution. Former President Trump has stated that no deal will be reached with Iran to end the war without “unconditional surrender.” Secretary Rubio has indicated to Arab officials that the war is expected to continue for several more weeks.
The ongoing conflict is costing the United States over US$900 million per day, with air assets being the most significant cost driver. US intelligence suggests that China may be preparing to provide financial assistance to Iran. Reports indicate that US-Israel have conducted more strikes per day in Iran than in any other bombing campaign in recent history. Defense companies, including Lockheed Martin and Boeing, have reportedly met with the Trump administration. Furthermore, Trump has expressed a desire for the full removal of Iran’s leadership, has specific individuals in mind for a successor, and has threatened a government shutdown over election-related legislation.
Economic Indicators Show Mixed Signals
Recent economic data from the US presents a mixed picture. US retail sales declined by 0.2% month-on-month, slightly better than the estimated 0.3% drop, with retail sales excluding autos meeting flat expectations. In a surprising turn, US nonfarm payrolls unexpectedly fell by 92,000, against an estimated gain of 60,000, and the unemployment rate ticked up to 4.4% from an estimated 4.3%.
In the Eurozone, Q4 GDP was revised down to 0.2%, with trade acting as a drag on growth, although consumption has been a driver amidst the uncertainties of the Iran war.
ASX Today: Rebalances and Corporate Deals
The S&P/ASX 200 index will undergo a rebalance today. Additions include Predictive Discovery (PDI), SRG Global (SRG), and Vulcan Energy (VUL). Removals will be Catapult Sports (CAT), DigiCo Infrastructure (DGT), and EBOS Group (EBO).
Pro Medicus has secured two 5-year contract renewals with a combined minimum value of $40 million. Rio Tinto has reportedly paused the sale of its titanium assets, as the ongoing conflict in Iran makes it impossible to sell the business to Chinese groups.
What to Watch Today: Oil’s Ascent, Tech’s Surprise Haven
The market will be keenly watching oil prices, which have experienced a massive surge of approximately 35% for WTI crude, marking the second-largest weekly increase in four decades. However, energy stocks have struggled to fully capitalize on this, with the S&P 500 Energy sector only managing a modest 0.1% gain. This suggests a potential shift towards anticipating future demand destruction.
Aluminium prices also saw a significant spike, climbing 4.2% overnight to US$3,420, the highest since April 2022. Given that Gulf smelters account for about 23% of ex-China primary output, this rise is notable. Similar to energy, key aluminium players like Alcoa (-1.2%) have not seen a corresponding upside.
In a surprising development, technology stocks, particularly software names, are exhibiting resilience, trading almost like safe havens. The iShares Expanded Tech Software ETF gained another 0.4% overnight and has been up for eight of the last nine sessions, marking a 14.3% increase to a one-month high. This trend was mirrored locally on Friday, with SiteMinder, Wisetech, Pro Medicus, and Catapult all rising more than 9%.
Broker Moves and Key Events
Broker Moves:
* Woodside Energy Group has been downgraded to Underweight from Equal-weight by Morgan Stanley, with its target price remaining at $26.
Key Events – Stocks Trading Ex-Dividend:
* Monday, March 9th: Alcoa Corporation (AAI) – $0.098, GTN (GTN) – $0.01, Nine Entertainment (NEC) – $0.045, Ramsay Health Care (RHC) – $0.425, Red Hill Minerals (RHI) – $0.116
* Tuesday, March 10th: Adairs (ADH) – $0.055, Big River Industries (BRI) – $0.02, COG Financial Services (COG) – $0.035, CSL (CSL) – $1.837, Dusk Group (DSK) – $0.04, Generation Development Group (GDG) – $0.01, Helia Group (HLI) – $0.83, Hitech Group Australia (HIT) – $0.045, Iress (IRE) – $0.13, Liberty Financial Group (LFG) – $0.075, Nido Education (NDO) – $0.022, PRL Global (PRG) – $0.02, Qantas Airways (QAN) – $0.198, Vault Minerals (VAU) – $0.07
* Wednesday, March 11th: Bhagwan Marine (BWN) – $0.005, Brambles (BXB) – $0.327, Breville Group (BRG) – $0.19, Cleanaway Waste Management (CWY) – $0.034, CUE Energy Resources (CUE) – $0.003, Finbar Group (FRI) – $0.025, IMDEX (IMD) – $0.017, Ive Group (IGL) – $0.095, Kip McGrath Education Centres (KME) – $0.01, Naos Ex-50 Opportunities Company (NAC) – $0.016, Peet (PPC) – $0.065, Tasmea (TEA) – $0.06, Thorney Opportunities (TOP) – $0.011, Vulcan Steel (VSL) – $0.021
Other ASX Corporate Actions Today:
* Dividends Paid: GWA Group (GWA)
* Earnings: None
* IPOs: None
* AGMs: None
Economic Calendar (AEDT):
* 12:30 pm: China Inflation data will be released.
