ASX futures point to a weaker open on Monday, with the S&P/ASX 200 expected to fall 61 points, or 0.7%, to 8,547 as rising oil prices intensify inflation concerns and lift expectations of further interest rate rises.
Markets are increasingly pricing in as many as three additional Reserve Bank of Australia (RBA) rate increases this year, which would lift the cash rate to its highest level since 2011.
The local sharemarket has already fallen sharply amid escalating tensions in the Middle East. Since the United States and Israel launched attacks on Iran two weeks ago, the benchmark index has dropped 6.3%, wiping more than $190 billion from market value.
Treasurer Jim Chalmers said Treasury expects headline inflation to reach the “mid to high fours” this year due to the surge in oil prices following the conflict. That compares with annual inflation of 3.8% recorded by the Australian Bureau of Statistics for the year to January, well above the RBA’s 2–3% target range.
The spike in energy costs has strengthened expectations that the central bank will lift the cash rate by 25 basis points to 4.1% at Tuesday’s meeting, with Australia’s major banks forecasting additional increases in March and May.
The S&P/ASX 200 ended last week at 8,617.10, down 2.6% for the week and marking its lowest weekly close since December.
Mining stocks weighed on the index, with BHP falling 2.3% to $49.80 after China expanded restrictions on its iron ore shipments. Fortescue rose 4.1% to $20.48, with analysts suggesting it could benefit from supply disruptions affecting its rival.
Among other stocks, Northern Star Resources fell 18.8% to $21.75 after warning it may struggle to reach the lower end of its FY26 production guidance, while Syrah Resources dropped 29.2% to 17¢ after the US International Trade Commission rejected proposed tariffs on Chinese graphite anode materials.
Banks provided some support as higher interest rates are expected to lift lending margins. National Australia Bank rose 1.5% to $47.11, while Commonwealth Bank gained 1.3% to $173.76.
Energy stocks were mixed despite elevated oil prices. Santos added 0.5% to $7.53, Ampol rose 1.9% to $30.85 and Woodside Energy finished flat at $31.04. Yancoal jumped 4.5% to $8.06, extending weekly gains to almost 20% as higher energy prices lifted coal markets.
Defence-related stocks also rallied amid heightened geopolitical tensions. Electro Optic Systems surged 18.4% to a record $11.74 after securing a US$42 million contract with a Middle Eastern customer, while DroneShield rose 6.4% to $4.17.
United States: Wall Street declines as oil supply risks dominate
US sharemarkets closed lower on Friday as investors assessed the potential impact of the Iran conflict on global energy supply.
The Dow Jones Industrial Average fell 0.3%, while the S&P 500 dropped 0.6% and the Nasdaq Composite lost 0.9%. All three benchmarks posted losses for both the day and the week.
Technology stocks led declines, while utilities recorded the strongest gains. The financial sector also weakened, falling 3.4% over the week amid concerns about credit quality.
Adobe shares fell 7.6% after announcing its long-serving chief executive would step down once a successor is appointed. Meta Platforms slipped 3.8% following reports it has delayed the launch of its artificial intelligence model “Avocado” until at least May.
Economic data showed US GDP expanded at an annualised rate of 0.7% in the December quarter, revised down from an earlier estimate of 1.4% and well below the 4.4% growth recorded in the September quarter.
Consumer spending rose 0.4% in January, while the Personal Consumption Expenditures index increased 0.3%, in line with expectations.
Europe: Middle East tensions drive second weekly decline
European markets also ended the week lower, recording a second consecutive weekly decline as geopolitical tensions and inflation concerns dampened risk appetite.
The pan-European FTSEurofirst 300 index fell 0.5% on Friday, while the UK’s FTSE 100 slipped 0.4%.
Industrial stocks led losses, dropping 1.8%, with Siemens Energy down 5.7% and Rolls-Royce falling 5.3%.
Mining stocks were among the weakest performers, declining 3.3% as silver and copper prices retreated.
Oil: Conflict escalation pushes crude above US$100
Oil prices remain near multi-month highs as the conflict in the Middle East threatens global supply.
Brent crude has climbed above US$100 a barrel after US forces targeted military sites on Iran’s Kharg Island, the country’s main oil export terminal responsible for more than 90% of its crude shipments.
Prices have surged about 40% in the past two weeks amid fears that shipping through the Strait of Hormuz could remain severely restricted.
WTI crude settled last week at US$98.71, up 8.6% for the week and marking a fourth consecutive weekly gain.
Over the weekend, oil briefly surged as much as 5.7% in weekend trading following the strikes before easing after Iran’s foreign minister indicated the Strait of Hormuz would remain open to nations not aligned with the United States and Israel.
Analysts expect volatility to persist, with potential price spikes toward US$105 a barrel, while downside support is seen near US$75.
Currencies: US dollar strengthens on risk aversion
Major currencies weakened against the US dollar as investors moved toward safe-haven assets.
- The euro fell to US$1.1418.
- The Japanese yen slipped to ¥159.58 per dollar.
- The Australian dollar declined 1.2% to US69.88¢.
Commodities: Metals mixed as stronger dollar weighs
Base metals were weaker as the stronger US dollar pressured prices.
- Copper futures fell 1.8% and aluminium dropped 2.3% after recently approaching four-year highs.
- Gold futures declined 3.4% to settle at US$5,062 an ounce.
- Iron ore futures rose 2.2% to US$105.14 a tonne, extending gains for a third consecutive session as restrictions on BHP cargoes raised supply concerns and expectations of stronger steel production in China supported demand.
Looking ahead: Central bank decisions in focus
Investors will be watching key central bank decisions this week.
The RBA is expected to announce its interest rate decision on Tuesday, with Commonwealth Bank economists forecasting a 25 basis point increase to 4.1%.
In the United States, the Federal Reserve will deliver its own policy decision on Wednesday, with markets expecting the central bank to hold the federal funds rate target range at 3.5%–3.75%.