Middle East crisis and oil supply fears to keep investors jittery
Australian shares are at risk of a correction in the near term given uncertainty in the Middle East and the impact the crisis will have on global oil supplies.
Investor jitters over how the Middle East crisis could have an impact on global oil supplies will ensure ongoing volatility on Australia’s sharemarket.
After falls on major overseas indices overnight on Friday, the futures market was pointing to a fall of 0.4 per cent on the benchmark S&P/ASX 200 on Monday.
JPMorgan chief executive Jamie Dimon warned that the war in Ukraine, compounded by last week’s attacks on Israel, may have a far-reaching impact on energy, food markets and global trade.
“This may be the most dangerous time the world has seen in decades,” Mr Dimon said.
Oil prices, meanwhile, surged amid fears about the impact of oil supplies in the crude-rich Middle East. Contracts for Brent North Sea crude for December delivery lifted 5.7 per cent on Friday, while those for America’s West Texas Intermediate rose 5.8 per cent, as fighting between Israelis and Hamas militants in the Gaza Strip continued.
Energi Danmark analysts said a recent pipeline sabotage in the Baltic Sea added to “geopolitical uncertainty” in the wake of the Israel-Hamas conflict.
Wall Street ended Friday mixed, with the tech-rich Nasdaq declining 1.2 per cent, and the S&P 500 falling 0.5 per cent.
But the Dow Jones Industrial Average defied the broader downward trend, rising 0.1 per cent on the back of positive earnings from JPMorgan and Wells Fargo, two of America’s biggest banks.
CFRA chief investment strategist Sam Stovall said JPMorgan and Wells Fargo “set an encouraging pace” with better-than-expected earnings and revenues.
All the major European markets fell on Friday, as the mood among traders turned more pessimistic.
AMP chief economist Shane Oliver said for the near-term shares were at high risk of a further correction given high recession and earnings risks, the risk of high-for-longer rates from central banks, rising bond yields that had led to poor valuations and the uncertainty around the latest conflict in Israel.
“The risk of a further leg down or re-test of the lows in global and Australian shares remains high,” Dr Oliver said. “The ride for shares is likely to remain volatile.”
He said the upside surprise in US inflation in September will keep the US Federal Reserve on edge, while share valuations remained stretched without a further fall in bond yields.
“The risk of recession remains high, uncertainty remains high around the Chinese economy and property markets, the US remains at high risk of a shutdown next month and the risk of an escalation to involve Iran in the Israeli conflict, which would directly threaten oil supplies is high,” Dr Oliver said.
Looking to the week ahead there will be plenty to occupy investor attention. Dr Oliver said the minutes from the last RBA meeting (due for release on Tuesday) were likely to provide more details on why it left rates on hold again this month, but also provide a reminder that it may still lift rates again.
Annual general meeting season gets into full swing with Telstra, Cochlear, Treasury Wine Estates, Stockland, Origin Energy, ASX and Transurban the main players.
The Australian Shareholders’ Association said it would be voting against the ASX remuneration report due to frustration with the board oversight of its CHESS replacement project and the events of last financial year.
“We remain undecided about electing Luke Randell as a director,” the ASA said.
Additional reporting AFP
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