ASX 200 futures are pointing sharply lower on Monday, down 156 points or 1.86% at 8:30 am AEDT, setting the market up for another bruising open after last week’s heavy selling. If that move holds, the benchmark will be flirting with a 10-month low and edging into correction territory from its early-March peak.
The offshore lead was poor again on Friday as investors grappled with the same two forces that have dominated markets for weeks: a worsening Middle East conflict and the inflation threat coming from higher energy prices. That combination pushed bond yields sharply higher, knocked Wall Street lower for a fourth straight week and kept the broader risk-off tone firmly in place.
Wall Street stays under pressure
US stocks finished near their session lows on Friday, with the S&P 500 down 1.51%, the Dow losing 0.96% and the Nasdaq shedding 2.01%. Small caps were hit harder again, with the Russell 2000 down 2.26%, leaving it the first to enter correction territory, more than 10% below its January high.
The key move was in bonds. The US 10-year yield jumped 13 basis points to 4.39%, its highest level since August last year, as markets continued to unwind expectations for rate cuts and instead contemplating tighter for longer. Australian yields have moved the same way, with the local 10-year pushing above 5% — a level not seen since 2011.
That repricing is being driven largely by oil. Brent ended above US$109 a barrel on Friday and WTI rose to US$98.23, with Iraq declaring force majeure on foreign-developed oilfields and the White House weighing further options to pressure Iran over the Strait of Hormuz.
The broader message from markets is clear: even if the war eventually cools, investors are increasingly worried that the damage to energy flows and supply chains could keep inflation sticky for longer.
Gold’s sharp unwind adds to the nerves
One of the more striking moves has been in gold, which fell 3.5% on Friday and finished the week down 10.5% — its steepest weekly drop since 1983.
That is not the usual pattern in a geopolitical crisis, but higher yields and a stronger US dollar have overwhelmed haven demand.
Copper also lost ground, down 1.7%, while weakness spread across most of the resource complex.
ASX ended last week on the back foot
Locally, the ASX 200 fell 0.82% on Friday to 8,428.4, capping a third straight weekly decline. The market remains stuck in a defensive crouch, with investors favouring energy, utilities and healthcare while staying wary of materials, financials and consumer-facing names.
Seven of 11 sectors finished lower on Friday. Materials were the biggest drag, down 1.61%, while financials also struggled. Energy, utilities and healthcare were among the few areas to hold up.
Among the notable movers, Premier Investments slipped after a mixed half-year result, while Virgin Australia fell after warning fares will need to rise to offset higher costs. On the firmer side, Electro Optic Systems rebounded after confirming its CEO completed a share selldown, with no further selldowns planned.
Commodities and currencies
The commodity picture remains messy. Oil is still elevated, but beyond that there is growing strain across the complex.
Gold’s heavy weekly decline has drawn attention, while copper and broader metals have also weakened. Iron ore held up better, aided by supply-side concerns around BHP product restrictions into China, but the overall tone for miners remains difficult given the combination of lower metals prices, higher fuel costs and rising yields.
The Australian dollar slipped to around US70 cents, while Bitcoin also lost ground over the weekend.
What to watch today
There is no major local economic data due today, so markets will remain driven by global headlines — particularly anything tied to Iran, oil flows and bond yields.
For the ASX, the immediate risk is that last week’s weakness spills into another broad-based sell-off, especially in yield-sensitive and growth-heavy corners of the market. Real estate, utilities and tech all came under renewed pressure offshore as yields moved higher, and that could weigh on the local index early.
The other key issue is sentiment. Markets are no longer responding to the conflict as a short-lived shock. Oil near US$100, bond yields at multi-month highs and a more hawkish rates backdrop are starting to look like a more durable headwind.
That leaves the local market heading into Monday with little margin for error.