ASX set to slide lower as Wall Street seesaws; Oil holds gains

Oil prices are leaping Monday with worries that the Iran war will clog the global flow of crude and make inflation even worse. US stocks, meanwhile, are swinging between sharp losses and a tiny gain.

The S&P 500 fell as much as 1.2 per cent at the start of trading, and cruise lines and airlines led the way lower. But the index quickly erased the loss, in part because past military conflicts have not led to sustained drops for markets, and it was back to virtually unchanged in midday trading.

The Dow Jones was down 58 points, or 0.1 per cent, and the Nasdaq composite was 0.4 per cent higher. The Australian sharemarket is set to retreat, with futures at 4.59am AEDT pointing to a fall of 23 points, or 0.3 per cent, at the open. The ASX edged higher on Monday.

The Federal Court’s Justice Michael Lee is due to hand down his judgement Tuesday morning on the landmark civil case ASIC brought against an entire board of former Star Entertainment directors in 2022, alleging they breached their directors’ duties to act with care and diligence.

Crude prices jumped more than 5 per cent, which will likely mean higher prices soon at petrol pumps. That would hurt not only US households, whose spending makes up the bulk of the US economy, but also businesses with big fuel bills.

Prices for natural gas remained higher, meanwhile, which could raise heating bills for the remainder of the winter, after a major supplier of liquefied natural gas to Europe said it would stop production because of the war. Gold climbed 1.3 per cent as investors looked for safer things to own and as US officials tried to persuade the world that this war will not last forever.

“This is not Iraq,” US Defence Secretary Pete Hegseth said Monday. “This is not endless.”

Typically, Treasury yields also fall when investors are feeling nervous. But yields instead climbed, in part because higher oil prices will put upward pressure on inflation, which is already worse than nearly everyone would like. That could tie the Federal Reserve’s hands and keep it from cutting interest rates.

Lower interest rates can boost the economy and job market, while also worsening inflation. Higher rates can do the opposite.

Past military conflicts in the Middle East have not caused long-term drops for markets. For this war to knock down US stocks in a significant and sustained way, the price of oil would perhaps need to jump above $US100 per barrel, according to strategists at Morgan Stanley led by Michael Wilson.

Oil prices are still well below there. A barrel of benchmark US crude rose 5.6 per cent to $US70.77. Brent crude, the international standard, climbed 5.9 per cent to $US77.20 per barrel.

That helped the US stock market pare some of its steep, opening loss. Morgan Stanley says the S&P 500 has climbed an average of 2 per cent, 6 per cent and 8 per cent in the one, six and 12 months following “geopolitical risk events” historically. That’s going back to the Korean War, which began in 1950, and the 1956 Suez crisis.

At the moment, though, fear is still running through markets.

Stocks of airlines were some of Monday’s sharpest losers. Not only do higher oil prices threaten their already big fuel bills, the fighting in the Middle East also closed airports and left travelers stranded.

United Airlines fell 2.7 per cent, and American Airlines lost 3.9 per cent.

Norwegian Cruise Line Holdings fell even more, 9.2 per cent. It needs customers to have plenty of cash to spend after paying for their gasoline bills and other essentials.

The cruise operator also reported weaker revenue for its latest quarter than analysts expected, though its profit was better. Its forecast for profit this upcoming fiscal year was lower than analysts expected.

Hotels, discount retailers and other companies that benefit when customers have more cash in their pocket from lower fuel bills also lagged the market. MGM Resorts fell 3.7 per cent, and Dollar Tree lost 3.9 per cent.

Stocks in the housing industry also struggled as higher Treasury yields could translate into more expensive mortgage rates. Paint company Sherwin-Williams fell 2.1 per cent, and homebuilder D.R. Horton lost 3.8 per cent.

Helping to limit Wall Street’s losses were oil companies, which benefited from the rising prices for crude. Exxon Mobil climbed 0.8 per cent, and Occidental Petroleum rose 0.8 per cent.

Companies that make equipment for the military also strengthened. Lockheed Martin climbed 1.7 per cent, and RTX rallied 4 per cent.

Palantir Technologies, whose software helps global defence agencies, jumped 6.3 per cent for the biggest gain in the S&P 500.

Big Tech stocks also helped to support the market. Nvidia rose 3 per cent and was the strongest single force pushing upward on the S&P 500.

In stock markets abroad, indexes fell across much of Europe and Asia. Germany’s DAX lost 2.6 per cent, France’s CAC 40 fell 2.2 per cent and Hong Kong’s Hang Seng dropped 2.1 per cent for some of the world’s larger losses.

Stocks in Shanghai were an outlier and rose 0.5 per cent.

In the bond market, the yield on the 10-year Treasury rose to 4.04 per cent from 3.97 per cent late Friday. A report showing growth for US manufacturing was better than economists expected last month also helped to lift yields.

AP

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