Australian shares are expected to open stronger today after confirmation of a peace agreement between Iran and the United States helped ease concerns over energy supply disruptions and pushed oil prices lower. The improving geopolitical backdrop is also expected to reduce pressure on central banks, including the Reserve Bank of Australia (RBA), which meets on Tuesday.
ASX futures were up 39 points, or 0.4%, to 8,853, pointing to a positive start for local equities after Wall Street closed higher on Friday and US futures strengthened following news that Iran had agreed to reopen the Strait of Hormuz.
Iran confirmed on Monday it had agreed to a deal with the US and would formally sign a memorandum of understanding in Switzerland on June 19. US President Donald Trump declared on social media that the agreement was complete.
Lower oil prices and reduced geopolitical tensions are expected to be key drivers for markets this week, particularly as investors assess interest rate decisions from the RBA and US Federal Reserve.
ASX rallies to five-week high
Australian shares surged on Friday as investors welcomed signs of progress toward a Middle East peace deal.
The S&P/ASX 200 gained 170.8 points, or 2%, to close at 8,804, marking its strongest one-day gain since April 8 and its highest level in five weeks.
For the week, the benchmark index rose 2.1% as investors positioned for an expected pause in interest rates from the RBA and responded positively to easing geopolitical risks.
Materials led gains after commodity prices strengthened. BHP rose 3.5% to $62.93 as copper and aluminium prices climbed on expectations of improved global economic stability.
Gold stocks also advanced, with Newmont up 4% to $137.79 and Pantoro Gold jumping 9.6% to $2.52.
The major banks recovered from earlier weakness. Commonwealth Bank gained 2% to $159.51, National Australia Bank rose 2.3% to $36.50, Westpac added 1.5% to $35.00 and ANZ climbed 1% to $34.17.
Energy stocks lagged as falling oil prices reduced earnings expectations across the sector. Karoon Energy fell 1% to $2.03, while Woodside Energy slipped 0.9% to $31.23.
RBA expected to hold rates steady
The Reserve Bank of Australia is widely expected to leave the cash rate unchanged at 4.35% when it concludes its board meeting on Tuesday.
A further decline in oil prices following the Iran-US agreement could support the RBA's inflation outlook by reducing pressure from energy costs.
Market attention will focus on the central bank's assessment of inflation risks and whether policymakers maintain a tightening bias after lifting rates at each of the previous three meetings.
Investment strategist Stephen Miller of GSFM cautioned that while a peace agreement is positive, investors should not assume all economic risks associated with the conflict have disappeared.
Wall Street rises as peace hopes and SpaceX (NASDAQ:SPCX) debut boost sentiment
US markets ended last week higher as investors anticipated a diplomatic breakthrough between Iran and the US while also responding positively to SpaceX's record-breaking Nasdaq debut.
The Dow Jones Industrial Average rose 0.7%, the S&P 500 gained 0.5% and the Nasdaq Composite added 0.3%.
SpaceX surged 19.2% to close at US$160.95, valuing the company at about US$2.1 trillion following the largest public listing in Wall Street history.
Materials and financials were among the strongest-performing sectors, while semiconductor stocks continued their rally. Intel rose 6.5% and Western Digital gained 6.4%.
Adobe was among the notable decliners, falling 6.8% following the departure of chief financial officer Dan Durn.
Investors are now looking ahead to Wednesday's Federal Reserve interest rate decision, the first under Fed chair Kevin Warsh.
European markets jump as oil prices retreat
European equities posted strong gains on Friday as hopes for a diplomatic resolution in the Middle East drove oil prices lower and improved risk appetite.
The pan-European FTSEurofirst 300 index rose 1.9%, while the UK's FTSE 100 gained 1.6%.
Spain's IBEX 35 outperformed regional peers, climbing 2.6% to a record high.
Travel and leisure stocks were among the biggest beneficiaries of lower fuel costs. Lufthansa rose 5.2%, Air France gained 8.4% and tourism operator TUI advanced 8.7%.
European banks also rallied strongly, with Deutsche Bank and Societe Generale each rising more than 6%.
Energy stocks were the only major sector to finish lower as crude prices declined.
Currencies and bond markets
Currency markets were relatively subdued ahead of key central bank meetings.
- The euro slipped 0.1% to US$1.1570.
- The Japanese yen weakened 0.2% to ¥160.12 per US dollar.
- The Australian dollar was little changed at US70.37 cents.
US Treasury yields edged higher as investors reduced safe-haven positions. The 10-year Treasury yield rose 2 basis points to 4.48%, while the 2-year yield increased 2 basis points to 4.09%.
Commodities: oil slides as Hormuz concerns ease
Oil prices fell to their lowest levels since early March as traders grew increasingly confident the Strait of Hormuz would remain open following the Iran-US agreement.
- Brent crude dropped 3.4% to settle at US$87.33 a barrel after earlier trading near US$84. West Texas Intermediate traded around US$81 a barrel.
- The decline in oil prices has eased concerns about a prolonged energy shock and its potential impact on inflation and economic growth.
- Base metals moved higher on expectations of stronger global trade and manufacturing activity. Copper futures jumped 2.7% and aluminium rose 1.7%.
- Gold rebounded 3% to US$4,239 an ounce after heavy losses earlier in the week, while iron ore was steady at US$101.62 a tonne.
Looking ahead
Investors will be focused on the RBA's interest rate decision tomorrow, with markets expecting no change to the cash rate.
In the US, traders will monitor the Empire State Manufacturing Index and industrial production data ahead of the Federal Reserve's policy announcement on Wednesday.
With oil prices falling, geopolitical tensions easing and central banks entering a critical week for interest rate decisions, markets appear poised to start the week on a positive footing.