It was looking like a bad day for trading on the ASX in the opening hours, with the index falling to 8,180 points.
However, a rally in iron ore stock – due mostly to a sizeable stimulus package from China driving the base metal’s prices higher – saved the bourse from taking too much damage, shedding just 12.2 points or 0.15% to close at 8,196.70 points.
The iron ore price movements were solid almost across the board – BHP gained 1.10%, Fortescue 1.05% and Blue Scope Steel lifted 1.28%. Materials overall gained 0.60%.
There was also strength in the Energy sector (+2.64%) and Utilities (+0.91%), as escalating conflict in the Middle East drives oil prices rapidly higher.
Woodside Energy lifted 3.42%, Santos 2.86% and Ampol 1.63%. Origin Energy also benefited from the higher costs, rising 1.47%.
The weakness in the ASX came mostly from Consumer Discretionary, down 1.73% as Australians tighten their belts, and Information Technology, down 1.66%.
Vault Minerals Ltd, down 4.48%, and Megaport Limited, down 3.58%.
Overall, the ASX200 has gained 0.87% over the last five days and sits 1.07% off its 52-week high.
Middle East tensions boil over
XTB research director Kathleen Brooks joins us to discuss the effect of geopolitical conflict on oil and stock prices.
“Iran has launched more than 200 ballistic missiles against Israel, in retaliation for Israeli attacks against Hezbollah in Lebanon,” Brooks writes.
“Although it was hard to see Iran standing idly by while the IDF launched a ground offensive in Lebanon, markets remained calm earlier on Tuesday. Once Iranian ballistic missiles rained down on Israel, the markets reacted.
“The question is, will this blow over with little escalation, like it did in April, the last time Iran launched missiles against Israel, or is this the start of a new, more dangerous chapter in the history of this conflict?
“US stocks are lower across the board. The Nasdaq is the weakest performer and is down nearly 2%, the S&P 500 is down 1.3% so far and the dollar is at its highest level in more than a week.
“The oil price had an about-turn on Tuesday, and is higher by more than 4%, after initially falling earlier in the day. Brent crude oil is now approaching $75 per barrel.
“Investors are rushing to the safety of gold, and it is up more than $30 on the day and is currently $7 per ounce away from the record high reached last week.
“While there is no obvious reason why US tech should sell-off on the back of Middle East tensions, it could be a rapid reallocation of resources to safe havens, in case this leads to a prolonged conflict in the region.
“The US has pledged to defend Israel if it comes under attack from Iran, the question now is, how far will Iran have to go for the US to step in?
“Investors could be willing to take profit from the top performing tech stocks and move money into safe havens until the situation in the Middle East calms down.”
What happens next?
“This continues to be a fluid situation,” Brooks acknowledges, “If the situation is resolved quickly, for example, like when Iran launched missiles into Israel back in April, then we could see a short-lived rush to safety, and we would expect stocks and tech companies to recover.
“If the US is dragged into this conflict and has to defend Israel, then the financial market impact of today’s events will be more long-lasting.
“The US Presidential election, which takes place in a little over a month, complicates the picture even more. The world’s most important Western power is changing its leader at the same time as tensions in the Middle East are boiling over.
“This is likely to enhance the volatility experienced by financial markets, and we expect asset prices and risk sentiment to be sensitive to headlines and news flow in the coming days.
“Overall, the markets are in wait and see mode. The next 24 hours will be critical to see how far this situation escalates and whether the rush to safe havens was justified.”
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