Falling oil prices give markets a reprieve as Iran strikes intensify

Stocks on Wall Street and in Europe gained as oil prices tumbled after US President Donald Trump signalled the conflict in Iran won’t be drawn out, even as defence secretary Pete Hegseth said airstrikes will be the most intense yet.

Australian futures are pointing to another positive day for the resources-heavy S&P/ASX 200 index – New Zealand’s S&P/NZX 50 index ended Tuesday marginally weaker – with rising gold prices buoying mining stocks on both sides of the Atlantic, such as Anglo American, Freeport-McMoRan and Newmont.

Air New Zealand is getting mixed cues from the Northern Hemisphere session as European carriers fared better than their US counterparts as they grapple with spiking jet fuel prices, with International Consolidated Airlines Group and Deutsche Lufthansa on the green side of the ledger, while Delta Air Lines, United Airlines and American Airlines declined.

And Briscoe Group is due to report its annual result today, with annual profit expected to fall by as much as 13% as the retail chain came through a relatively upbeat Christmas sales period while contending with a new competitor in the form of Ikea.

Running on headlines

Investor sentiment continued to improve after US President Trump moved to quell fears the conflict in Iran will drag on, saying the White House has already achieved the goals of its campaign. The volatility index, known as Wall Street’s fear gauge, fell 10% to 22.95 and Bitcoin advanced 2.7% to US$70,893 at 7am in Auckland.

Still, US defense secretary Hegseth said Tuesday’s airstrikes will be the most intense yet, and Polymarket prediction markets are pricing in a 31% chance of a ceasefire before the end of this month and a 56% chance of hostilities ending by the end of April.

Brent crude oil futures dropped 14% to US$85.33 a barrel.

“Despite Trump’s optimism that the war could soon be over, there’s no hint of any de-escalation,” Bank of New Zealand senior markets strategist Jason Wong said in a note. “The Strait of Hormuz remains effectively closed for shipping and Gulf nations have cut more production due to damage to some plant and a lack of storage facilities.”

Stock markets embraced the decline in oil prices, with the S&P 500 up 0.5% in late trading and the Nasdaq Composite advancing 0.7%. The Dow Jones Industrial Average was up 0.8%, with Cisco Systems, Honeywell International and Caterpillar leading the blue-chip index higher.

Stock markets were more enthusiastic across the Atlantic as the UK’s FTSE 100 climbed 1.4%, Germany’s DAX jumped 2.4% and France’s CAC 40 advanced 1.8%.

Anglo American was among the leaders for the UK’s FTSE as gold futures rose 2.7% to US$5,239 an ounce at 7am in Auckland, with Newmont and Freeport also stronger.

Up in the air

Meanwhile, European airlines fared better than their US counterparts, providing a mixed lead for Air NZ, which pulled its earnings guidance on Tuesday as the national carrier gets squeezed by rising jet fuel prices as it already struggles with profitability.

Bond traders weren’t as convinced by the White House’s efforts to calm markets, with the yield on US 10-year Treasuries nudging up 1 basis point to 4.13%, while the yields on German and UK equivalents dipped 2 basis points to 2.84% and 9 points to 4.5% respectively.

The kiwi dollar rose to 59.56 US cents at 7am in Auckland from 59.10 cents yesterday, with yesterday’s decline in New Zealand interest rates yet to fully unwind the surge over the past week.

“While debate is raging across the Tasman about RBA rate hikes, that narrative has yet to be fully embraced in NZ, but this seems just a matter of time,” BNZ’s Wong said, referring to the Reserve Bank of Australia. “Inflation is already running above target, stimulatory policy settings are adding to inflation risks, and the inflationary impact of the war in Iran is already well underway, with higher oil prices feeding into retail petrol and diesel prices, airline fares, fertiliser and freight costs.”

The improved risk sentiment is set to carry through to the antipodes, with futures pointing to a 0.9% gain for the ASX200 when trading opens across the Tasman.

No local data are scheduled for today, while Briscoe is due to report its annual result, having flagged profit fell to a range of $59 million-to-$60 million in the year, even as it eked out a 0.9% increase in sales.

Companies going ex-dividend today include Vulcan Steel and Goodman Property Trust.

Reporting by Paul McBeth. Image from 36Moritz Kindler on Unsplash.