ASX falls, oil rebounds after US strikes Iran; Kogan jumps, ASX Ltd tanks

The Australian sharemarket slipped on Tuesday after US and Israeli jets struck Iranian vessels in the Strait of Hormuz and other targets, triggering doubts about an imminent end to the war just hours after President Donald Trump had suggested peace talks with Tehran were progressing.

The S&P/ASX 200 finished down 34.2 points, or 0.4 per cent, at 8657.80, with miners the only sector in the green. The downturn came after the ASX rose 0.4 per cent on Monday as hopes for a deal to end the US-Iran war had bolstered investor confidence and pushed down oil prices. The Australian dollar edged down 0.1 per cent to US71.67¢ in afternoon trade.

The strikes, which included attacks on Iranian missile launch sites and boats placing mines, were done “to protect our troops from threats posed by Iranian forces,” but the military was “using restraint during the ongoing ceasefire”, a US military spokesman said in a statement.

The US-Israeli attack took place south of Larak Island in the Strait of Hormuz, with several Iranian personnel killed, Iran’s state-run Nour News reported. Trump had earlier said negotiations with Iran over an agreement to extend their ceasefire and reopen the strait were “proceeding nicely”.

“The market is going to be cautious, given how previous hopes for a deal were dashed,” said Abbas Keshvani, director of Asia macro strategy at RBC Capital Markets in Singapore.

The renewed fighting highlights the fragile nature of the existing ceasefire, just as expectations had been mounting of a longer truce and the reopening of the strait. The critical waterway has been all but closed since the US and Israel attacked the Islamic Republic in late February, triggering an energy shock and spurring a wave of global inflation.

Global stocks had climbed to record highs overnight and crude oil slumped after officials signalled the US and Iran were nearing a deal to reopen the strait and restore oil flows. However, Brent crude turned higher again after the reports of the latest skirmishes, rising 2.4 per cent to $US98.46 a barrel, while West Texas Intermediate was near $US92.

Despite the bump in oil prices, energy stocks finished the day lower as the peace talks continued, extending their losses from Monday. Oil and gas giant Woodside inched down 0.1 per cent, its rival Santos dropped 0.9 per cent, while refiner Ampol was down 0.7 per cent and Viva Energy shed 0.9 per cent. Coalminers Yancoal and Whitehaven slumped 3.3 per cent and 3.1 per cent, respectively.

Negotiations will still “take a few days” as both sides discuss language in an initial document, Secretary of State Marco Rubio told reporters in India on Tuesday.

Financial stocks also declined, weighing on the wider market. CBA was down 0.2 per cent, Westpac lost 0.4 per cent, while National Australia Bank fell 0.8 cent and ANZ Bank shed 0.3 per cent.

Stock exchange operator ASX Ltd dived 13.3 per cent after flagging it would increase its capital spending to as much as $200 million in the new financial year to upgrade critical market infrastructure. The spending shock comes as the company seeks to regain the confidence of regulators and stakeholders after years of technical issues.

Flight Centre shares lost 3.5 per cent after the travel agent said in a trading update its early fourth-quarter results were “heavily impacted” by the Middle East tensions, with travel cancellations and refunds to customers leading to a $10 million profit hit in April, and greater damage expected for the usually stronger trading months of May and June.

Utilities and consumer staples were also weaker as hopes for a deal to end the war continued, prompting some investors to shift out of the defensive sectors. Power companies Origin Energy and AGL were down 2.3 per cent and 2.8 per cent, respectively, while supermarket giants Woolworths and Coles dropped 0.8 per cent and 0.6 per cent. Telstra shares shed 0.9 per cent.

Bucking the trend, Kogan shares soared 18.6 per cent after the online retailer said its earnings jumped 25.4 per cent to $26.9 million in the 10 months to April 30 as its Mighty Ape business turned around and Kogan.com showed strong profitability.

The overall market losses on the ASX came as futures contracts on the S&P 500 rose 0.6 per cent, while those on the Nasdaq 100 were up 0.9 per cent. Wall Street was shut overnight for the Memorial Day holiday.

The hopes of an end to the war, which is weighing heavily on the global economy, had spurred markets around the world overnight. The MSCI All Country World Index, the broadest measure of global equities, rose 0.5 per cent to an all-time high closing level. Europe’s benchmark Stoxx 600 gained for a sixth straight session to close at the highest level since the outbreak of the war.

“A clear FOMO factor contributes to unexpectedly strong global risk appetite: investors don’t want to be left out if the Iran war comes to an end while the AI theme continues to lift the stock market,” said Dana Malas, a strategist at SEB.

Meanwhile, traders also remain focused on inflation. They have fully priced in a Federal Reserve rate hike by year-end, underscoring expectations that the new US central bank chair Kevin Warsh will need to act swiftly. Later this week, US Personal Consumption Expenditures data and inflation readings across Europe will offer clues on price pressures and the direction of interest rates.

Warsh, who has promised the biggest shakeup in decades at the US central bank, was sworn into office on Friday. Trump stressed that he wants Warsh to independently lead the Fed, as he looked to downplay investor concern that he would pressure the new central bank chief on policy decisions.

The Fed may have enough reason to justify an interest rate cut rather than a hike under new chairman Warsh, according to BlackRock.

Elsewhere, China launched an unprecedented campaign against illegal cross-border trading to stem capital outflows, threatening severe penalties against popular brokers and ordering non-compliant accounts to be liquidated within two years.

with AP, Bloomberg

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