Wall St, European stocks slide as Iran conflict escalates

Stocks on Wall Street and in Europe declined as tensions in the Middle East remain high, with US President Donald Trump saying stopping Iran from getting nuclear weapons is more important than oil prices, while Iran’s new supreme leader Mojtaba Khamenei vowed to keep the Strait of Hormuz closed.

The inflationary impulse of rising energy prices continued to weigh on bonds, with yields on government debt nudging higher as traders bet the likes of the Reserve Bank will have to raise interest rates later this year, while ANZ economists projected a soft period of activity for New Zealand’s economy in the December quarter.

Financial stocks weighed on US and European markets, with the likes of Goldman Sachs in the US, Germany’s Deutsche Bank, the UK’s HSBC and France’s BNP Paribas on the red side of the ledger and carriers such as American Airlines and United Airlines continued their descent, while energy majors including Exxon Mobil and Chevron rallied.

Australian futures are pointing to a soft start to the day for the ASX when trading opens, while local data include the Bank of New Zealand-BusinessNZ performance of manufacturing gauge.

On edge

Investor sentiment stayed in the doldrums during the Northern Hemisphere session as they fret over the Middle East conflict, with the Polymarket prediction market pricing in a 47% chance of a ceasefire by the end of April.

US and Iranian leaders remained defiant as strikes escalate, as President Trump said keeping nuclear weapons out of Iran’s hands is a bigger priority than oil prices, and Iranian supreme leader Khamenei said the Islamic Republic will keep the Strait of Hormuz closed and potentially broaden attacks on new fronts.

Brent crude oil futures eased from above US$100 a barrel, and were up 8.3% at US$99.64/barrel at 7am in Auckland, while the volatility index, known as Wall Street’s fear gauge, climbed 7% to 25.93.

“A record release of strategic oil reserves has failed to cap the rally, while concerns around private credit and fresh US tariff probes added to the risk‑off tone,” BNZ senior interest rate strategist Stuart Ritson said in a note.

Bonds continued to sell off with the yield on US 10-year treasuries up 2 basis points at 4.26% as traders pare back their bets on the Federal Reserve cutting the federal funds rate this year as central banks turn their attention to more expensive oil driving up consumer prices.

Nascent recovery?

The kiwi dollar fell to 58.57 US cents at 7am in Auckland from 59.05 cents yesterday, with ANZ and BNZ economists forecasting slower growth in the December quarter than the Reserve Bank.

Bond traders have fully priced in a rate hike by the RBNZ in September.

Stocks on Wall Street and in Europe were weaker, with financial stocks weighing on markets. Goldman Sachs led the Dow Jones Industrial Average lower, with the blue chip index down 1.2% in late trading, while the S&P 500 fell 1.2% and the Nasdaq Composite sank 1.5%.

The UK’s FTSE 100 dipped 0.5%, while Germany’s DAX slipped 0.2% and France’s CAC 40 declined 0.7%.

Airlines continued to be buffeted by the elevated oil prices, with American Airlines and United Airlines on the wane, setting a soft lead for Air New Zealand, which touched a record-low on an adjusted basis on Thursday.

Energy companies such as Chevron and Exxon rallied on Wall Street, although futures are pointing to a 0.2% decline when the resources-heavy S&P/ASX 200 index opens, with gold futures down 1.2% at US$5,116 an ounce.

Local data today include the BNZ-BusinessNZ PMI for February, which predates the latest global ructions and the shrinking of Heinz Wattie’s domestic operations. Statistics New Zealand will also release January travel and migration figures.

Reporting by Paul McBeth. Image from Erik Mclean on Unsplash.