RBA, Westpac earnings loom as Middle East conflict flares up

The kiwi dollar fell against its trans-Tasman counterpart ahead of the Reserve Bank of Australia’s policy review, which is expected to deliver another rate hike as policymakers try to stamp out inflationary pressures that had already been taking hold before the global energy shock.

Australian futures are pointing to a soft start to the day for the ASX, with Westpac Banking Corp rounding out the latest round of first-half earnings from three of the big four lenders, who’ve been provisioning for more bad debts as the Middle East conflict dents economic activity around the world.

Stocks on Wall Street and in Europe declined as tensions boiled over in the Middle East, with US President Donald Trump saying a skirmish broke out in the Strait of Hormuz, while Iran launched a strike on the United Arab Emirates.

And local transport and logistics firms such as Freightways and Mainfreight will be on notice after Amazon’s opening up of its global supply chain to other businesses weighed on the likes of FedEx and United Parcel Service.

Aussie inflation

The Reserve Bank of Australia is expected to hike the target cash rate 25 basis points to 4.35% at today’s policy review in what would be its third increase, as the Middle East conflict and the ensuing global energy shock added to the inflationary pressures already plaguing the nation.

The kiwi dollar fell to 81.91 Australian cents at 7am in Auckland from 82.12 cents yesterday, with the yield on New Zealand’s 10-year government bond at 4.67% compared to 4.98% for its trans-Tasman equivalent.

“The RBA is widely expected to hike its cash rate by 25 basis points for a third consecutive meeting, but following the close vote at the previous meeting, this isn’t priced as a done deal,” Bank of New Zealand senior market strategist Jason Wong said in a note.

Australian futures are pointing to a 0.8% decline for the S&P/ASX 200 index when trading opens across the Tasman, following a soft lead in New York and yesterday’s 0.4% dip. New Zealand’s S&P/NZX 50 index rose 0.5% yesterday after a late rally pushed it into positive territory.

Westpac is due to report its first-half result today, following National Australia Bank and ANZ Group Holdings, which both noted the impact of the Middle East conflict on their credit provisioning.

Renewed tensions

Stocks on Wall Street and in Europe were broadly weaker after the latest flare-up in the Middle East, where US and Iran traded fire in the Persian Gulf and the UAE intercepted Iranian cruise missiles and said a fire at its Fujairah port was due to a drone strike.

Brent crude oil futures rose 6% to US$114.69 a barrel at 7am, while the volatility index, known as Wall Street’s fear gauge, jumped 8.3% to 18.40. The Polymarket prediction market is pricing in a 14% chance of a lasting peace by the end of this month and a 34% chance by the end of June.

The Dow Jones Industrial Average fell 1.1%, with Home Depot, Nike and Procter & Gamble leading the blue-chip index lower, while the S&P 500 slipped 0.4% and the tech-heavy Nasdaq Composite dipped 0.2%. The UK’s FTSE 100 decreased 0.1%, while Germany’s DAX dropped 1.2% and France’s CAC 40 shed 1.7%.

Norwegian Cruise Line sank 9.1% after the cruise operator cut its annual guidance on as tourists pull back their travel plans and fuel costs bite, while airlines were broadly weaker.

Logistics firms such as FedEx and UPS dropped after Amazon said it’s opening up its global supply chain to third party businesses, with P&G, 3M, Land’s End and American Eagle Outfitters partnering with the big tech firm.

Palantir Technologies and Paramount Skydance are due to report after the bell in New York.

Local data today include ANZ’s monthly commodity price index, ahead of the next Global Dairy Trade auction overnight.

Reporting by Paul McBeth. Image from Graham Holtshausen on Unsplash.