Markets on edge as Iran digs in on Strait of Hormuz

Financial markets were on edge with stocks on Wall Street weaker and bond yields back on the rise as Iran stood by a proposal to reopen the Strait of Hormuz that was rejected by US President Donald Trump.

Nvidia bucked the trend amid the dour mood on chipmakers and semiconductor firms after the world’s biggest listed company announced a US$150 billion share buyback, and separately unveiled a new artificial intelligence security system.

SpaceX’s successful launch of its Starship rocket failed to shake off the broadly negative sentiment, while Boeing dropped after reports that a software glitch could complicate the rollout of its new 737 MAX 10 model.

And the Reserve Bank of Australia is widely tipped to deliver another rate hike when it reviews monetary policy today, while New Zealand’s Treasury will release the pre-election economic and fiscal update, which is expected to reaffirm the government’s path to an operating surplus.

Nervous times

Brent crude oil futures rose 0.8% to US$105.18 a barrel at 7am in Auckland as Iran said it was standing by a proposal to reopen the Strait of Hormuz that was rejected by US President Trump, with Bloomberg reporting that Iranian officials were pessimistic about a deal being reached before the Nov 3 US midterm elections. Iranian foreign minister Abbas Araghchi was due to meet a Qatari mediator in New York in the coming days to discuss various proposals.

Meanwhile, Bloomberg reported Saudi Arabia restored about half the flows through its East-West pipeline to the Red Sea after it was damaged by Houthi militants. Separately, diesel prices have been rising as the US seeks to restrict exports of the fuel to shore up its own supply.

“Iran and the US remained far apart over a ceasefire agreement and the reopening of the Strait of Hormuz,” Bank of New Zealand senior interest rate strategist Stuart Ritson said in a note. “Oil prices remained the key driver of volatile trading in US treasuries.”

The yield on US 10-year treasuries rose 2 basis points to 5.23%, widening the gap with New Zealand’s benchmark at 5.13%. The kiwi dollar traded at 56.74 US cents at 7am from 56.69 cents yesterday.

Rising oil prices and bond yields weighed on stock markets on both sides of the Atlantic, with the Dow Jones Industrial Average down 0.4% in late trading, with Boeing, Salesforce and International Business Machines at the bottom of the leaderboard.

The S&P 500 fell 0.6% and the tech-heavy Nasdaq Composite declined 0.7%, while the UK’s FTSE 100 and Germany’s DAX were both down 0.1%. France’s CAC 40 edged up as luxury goods firms Hermès International and Kering were among the day’s gainers.

In the details

Boeing dropped 5.9% in late trading after the Wall Street Journal reported the planemaker told airlines of a software issue that could affect the rollout of its new 737 MAX 10 model.

Meanwhile, SpaceX dipped even as it oversaw the successful launch of its Starship rocket into orbit, carrying 26 Starlink satellites.

Nvidia was on the green side of the ledger, up 2.1% in late trading, after announcing a US$150 billion stock buyback, eclipsing Apple’s US$110 billion buyback in 2024.

Separately, the chipmaker said it had introduced a new AI security system that it claimed would have prevented the high-profile breach of Hugging Face by OpenAI’s models.

OpenAI paused training its newest models after the latest bout of agents going rogue, and executives from the ChatGPT developer joined their peers at Anthropic, Meta Platforms and Microsoft in urging policymakers to get more visibility into how AI was automating research.

Separately, OpenAI and Anthropic chiefs Sam Altman and Dario Amodei won’t appear before an Australian senate inquiry, which requested their attendance after the AI hack of a government website.

Meanwhile, Bloomberg reported China expanded travel restrictions for top AI professionals to restrict the flow of information to the US.

Chinese retailer Shein reported a 53% slide in operating income in its first result as a listed company, while UK gambling group Entain sank to a five-year low as Brazil’s government moved to outlaw online betting.

Australian futures are pointing to a 0.2% gain for the S&P/ASX 200 index when trading opens across the Tasman, with the RBA expected to raise the target cash rate 25 basis points to 4.6% today.

Meanwhile, New Zealand’s government will open the books in its pre-election economic and fiscal update, which is expected to reaffirm the path to an operating surplus in the 2029 fiscal year. New Zealand Debt Management will also update its borrowing programme alongside the release.

No major local data are due today, while retailer Hallenstein Glasson Holdings will report its annual result. Among NZX-listed companies holding annual meetings today are Savor Group, Trade Window Holdings and Cooks Coffee Co.

Reporting by Paul McBeth. Image from Mark Ashford on Unsplash.