Markets Overview
- ASX SPI 200 futures down 0.2% to 8,469.00
- Dow Average little changed at 42,206.82
- Aussie down 0.9% to 0.6426 per US$
- US 10-year yield fell 1.5bps to 4.3751%
- Australia 3-year bond yield fell 3.1 bps to 3.32%
- Australia 10-year bond yield fell 3.3 bps to 4.18%
- Gold spot little changed at $3,368.39
- Brent futures down 2.3% to $77.01/bbl
Economic Events
- 09:00: (AU) June S&P Global Australia PMI Mfg, prior 51.0
- 09:00: (AU) June S&P Global Australia PMI Compo, prior 50.5
- 09:00: (AU) June S&P Global Australia PMI Servi, prior 50.6
- 11:00: (AU) Australia to Sell A$1 Billion 1.75% 2032 Bonds
US equity futures dropped and oil advanced in Asia on Monday following US strikes on Iran’s nuclear sites over the weekend.
Contracts for the S&P 500 declined around 0.5% and a gauge of Asian equities also retreated. Global crude benchmark Brent rose almost 3% after surging as much as 5.7%. The dollar climbed against the euro and most major peers. Equity indexes in Japan and Australia were in the red, while Treasuries were little changed.
Global markets pared most of their early moves, with investors waiting to see how Iran will respond after it warned of retaliation and Israel showed no sign of letting up in its assault. Oil remained the primary focus as any disruption to traffic through the Strait of Hormuz, a major artery for global crude and natural gas, has raised the specter of a spike in energy prices.
“This kind of uncertainty is quickly becoming the new normal for markets, so I expect to see a relative sense of calm unless we see tensions keep rising, which, to be clear, it has the potential to do,” said Josh Gilbert, a market analyst at eToro in Sydney. “Even without an immediate fallout, the mix of oil volatility and renewed uncertainty is likely to be enough to keep risk appetite subdued.”
Market reaction had been generally muted since Israel’s initial assault this month. Even after falling for the past two weeks, the S&P 500 is only about 3% below its all-time high from February. The dollar has climbed just over 1% since hitting a three-year low earlier this month.
Investors have mostly expected the conflict to be localized, with no wider impact on the global economy, said Evgenia Molotova, a senior investment manager at Pictet Asset Management.
“It all depends on how the conflict develops and things seem to be changing by the hour,” she said. “The only way they take it seriously is if the Strait of Hormuz gets blocked because that will affect oil access.”
Iran has vowed to impose “everlasting consequences” for the bombing and said it reserves all options to defend its sovereignty. Meanwhile, Israel resumed its assaults, targeting military sites in Tehran and western Iran.
“If a cycle of retaliation continues, increased US fiscal spending could lead to a rise in Treasury yields and US stock prices,” Ataru Okumura, a senior interest-rate strategist at SMBC Nikko Securities Inc., wrote in a note. In the conflict in Iraq in 2003 and the Gulf War in 1991, “US stocks rallied as the stimulus effect of massive war spending became apparent or was expected to become apparent.”
Downside may be limited because some market participants have been preparing for a worsening conflict. The MSCI All Country World Index has pulled back 1.5% since Israel attacked Iran on June 13. Fund managers have reduced their stock holdings, shares are no longer overbought and hedging demand has increased, meaning a deep selloff is less likely at these levels.
Elsewhere, Federal Reserve Bank of San Francisco President Mary Daly on Sunday said she sees the central bank’s monetary policy stance as “in a good place” currently, with risks to its US employment and price stability mandates as roughly equal. Daly said she sees the central bank cutting rates in the fall, later than Governor Christopher Waller who said Friday he sees a move as soon as July.
Traders will be parsing economic activity data in Europe and the US later Monday to gauge whether the US trade war has crimped factory output ahead of the July 9 reciprocal tariff deadline. European Central Bank President Christine Lagarde is also due to speak.
