ASX closes lower as Middle East tensions linger; Banks slump

Welcome to your five-minute recap of the trading day.

The numbers

Australia’s sharemarket has given up a five-week winning streak, as investors grapple with military conflict, global growth concerns and lofty valuations.

The slump came after a week of surging oil prices amid escalating conflict between Israel and Iran and as US President Donald Trump flagged potential American military involvement within two weeks.

The ASX fell on Friday amid escalating Middle East tensions.Credit: Oscar Colman

The S&P/ASX 200 fell 18.2 points, or 0.2 per cent, to 8505.5, as the broader All Ordinaries lost 17.9 points, or 0.2 per cent, to 8723.5. Six of 11 local sectors improved on Friday, but a 4.5 per cent slump in Australia’s raw materials sector over the week weighed on the bourse, as weak manufacturing data from China dragged iron ore prices down to nine-month lows.

The Australian dollar is buying US64.91¢, up slightly from US64.71¢ on Thursday at 5pm, coiling tightly within its recent range with the greenback.

The lifters

Energy stocks strengthened as oil prices continued to rise. Woodside Energy added 0.5 per cent and Santos jumped 0.3 per cent. Most utility stocks also moved higher, led by a 2.2 per cent rise in pipeline business APA Group, and a 3.4 per cent rise in New Zealand power company Meridien Energy.

Buy now, pay later business Zip Co posted the biggest gain on the ASX 200, rising 5.9 per cent, followed by mining services provider NRW Holdings, which rose 5 per cent.

The laggards

Financials weighed heavily on the bourse, down 1.3 per cent and wiping out Thursday’s gains as the big four each lost between 0.2 per cent and 2.5 per cent.

ANZ Bank shed 2.5 per cent, Westpac fell 1.1 per cent, National Australia Bank retreated 0.5 per cent and Commonwealth Bank lost 0.2 per cent.

The slip came as expectations for a Reserve Bank interest rate cut in July fell from 86 per cent to 78 per cent.

Likewise, rate-sensitive consumer-facing stocks were the next worst performing sectors, with consumer discretionary stocks down 0.9 per cent and consumer staples sinking 0.7 per cent.

Mining stocks were mixed. Fortescue fell 0.5 per cent, BHP gained 0.2 per cent and Rio Tinto slipped 1.3 per cent.

The lowdown

The local slump came as the Middle East conflict weighed on investor sentiment and as thin trading conditions due to a US bank holiday sent European equities and US futures lower, Capital.com market analyst Kyle Rodda said.

“Like last week, where hostilities were boiling over, market participants may be reluctant to hold on to risk exposure over the weekend when a historic US strike on Iran nuclear facilities is an uncomfortably high possibility,” Rodda said.

Traders’ moods turned more cautious after a report that senior US officials were preparing for a possible strike on Iran in coming days. Global markets were already on edge after the Federal Reserve downgraded its estimates for growth this year and projected higher inflation.

As attacks in Israel and Iran escalated overnight, oil prices surged almost 3 per cent to $US77.50 a barrel, their highest level since January, before settling at $US75.83 a barrel after Trump’s deadline eased fears of an imminent US attack.

Brent Crude could jump to $US90 a barrel if the Strait of Hormuz is closed, said Citigroup, which added that a prolonged halt to shipping through the crucial waterway would be unlikely.

Global markets remain on edge.Credit: Reuters

“Any closure of the strait could lead to a sharp price spike,” analysts including Anthony Yuen and Eric Lee wrote in a note, citing the bank’s current bullish scenario. “But we think the duration should be short, as all efforts would focus on a reopening so that it should not be a multi-month closure.”

Trump’s tariffs agenda remains another major factor weighing on markets. The US president’s announcement of higher global tariffs in April has raised the spectre of quicker inflation in the US and slower economic growth. Trump is also pushing lawmakers to pass a tax and spending bill that analysts expect will expand the deficit by trillions of dollars over the coming decade.

A number of Australia’s biggest investors say they are cutting their holdings of US Treasuries, citing concern over Trump’s tariff and tax plans.

State-owned Funds SA, which oversees the equivalent of $US30 billion ($46 billion), has switched to an underweight position in US sovereign debt, while government-run Queensland Investment Corp, with assets of $US86 billion, said some of the clients whose money it manages are reducing their Treasury exposure.

Overnight, trading volumes were thin as Wall Street shut for Juneteenth, the holiday that marks the end of slavery in the United States. The pan-European STOXX 600 closed down for the third consecutive day with a 0.8 per cent drop to its lowest level since May 9.

European central bank decisions this week showed how Trump’s unpredictable trade policies were complicating monetary policy.

The Bank of England kept rates on hold, as expected, but flagged risks from a weaker labour market and higher energy prices. Britain’s FTSE 100, which houses energy giants such as BP and Shell, lost 0.6 per cent.

Jerome Powell, chairman of the US Federal Reserve, expects inflation to pick up soon because of the White House’s tariffs.Credit: Bloomberg

The Swiss National Bank cut rates to zero as expected, while Norway’s central bank delivered a surprise 25 basis-point cut, its first reduction in five years. Stocks in Oslo were up 0.7 per cent.

The Euro STOXX Volatility index touched its highest level since May 23 and was at 24.94.

Fed chair Jerome Powell said on Wednesday that inflation in goods prices was expected to rise over the northern summer as Trump’s tariffs worked their way to consumers.

With AAP, Reuters, Bloomberg

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