Wall Street retreats as Trump threatens to renew attacks on Iran

Wall Street cast a pall over the antipodes as US President Donald Trump said he’d resume attacks on Iran as the Islamic Republic dragged its heels in peace negotiations, pushing up oil prices and knocking stock markets for another day.

The kiwi dollar remained subdued, providing relief for exporters such as Fisher & Paykel Healthcare and a2 Milk Co, as underlying inflation remained in check in the US despite a spike in fuel prices, keeping New Zealand 10-year government bond yields in line with their American counterparts.

US chipmakers and semiconductor companies were again on the back foot with Super Micro Computer shedding more than a quarter of its value as investors were spooked by the server maker’s plans to raise money as the oversubscribed SpaceX initial public offering soaks up attention, and with cloud services firm Oracle due to report after the bell.

And Australian futures are pointing to a slow start to the ASX when trading opens across the Tasman, with a slump in gold prices set to keep weighing on mining companies such as Santana Minerals.

Heightened fears

The CBOE volatility index, known as Wall Street’s fear gauge, jumped 8.6% to 21.57 in late trading as US President Trump’s threat of a new wave of attacks on Iran sapped investors’ appetite for riskier assets. The Polymarket prediction market was pricing in a 15% chance of a lasting ceasefire by the end of the month, and a 31% chance by the end of July.

Brent crude oil futures rose 2% to US$93.29 a barrel, weighing on carriers such as United Airlines and American Airlines, and setting a weak lead for the likes of Air New Zealand and Qantas Airways in local trading.

Stocks on Wall Street tumbled, with the S&P 500 down 1.4%, the Dow Jones Industrial Average falling 1.5% and the Nasdaq Composite sliding 1.8%.

The declines were broader than the volatile AI trade, which had seen chipmakers and semiconductor companies whipped between sharp gains and losses in recent days, with Caterpillar, Honeywell International and Nvidia at the bottom of the Dow’s leaderboard.

Super Micro slumped 26% after announcing plans to raise US$7 billion through a series of equity offerings, coming as investors were already clearing their portfolios to make room for the SpaceX IPO, Alphabet offering and any other mega deals that might emerge in the coming weeks.

Oracle’s quarterly earnings after the bell will be the next bellwether for the AI sector.

Inflation in check

US consumer inflation data barely registered with markets, with the 2.9% core annual pace in line with expectations and easing pressure on the Federal Reserve to hike its key interest rate.

“While market pricing has recently flipped from pricing Fed cuts to hikes this year, a hike is not imminent,” Salt Funds Management economist Bevan Graham said in a note. “The impact of higher fuel prices remains uncertain, and the Fed is likely to stay in wait-and-see mode for the foreseeable future.”

The kiwi dollar traded at 58.09 US cents at 7am in Auckland from 58.14 cents yesterday, while the yield on New Zealand’s 10-year government bond was 4.54%, matching the US equivalent.

Greg Boland, market strategy consultant at Moomoo, said the soft kiwi would continue to provide support for exporters, as it increases the value of their overseas earnings.

“For the NZX, exporters such as Fisher & Paykel Healthcare, a2 Milk and Skellerup remain well placed with the New Zealand dollar still below recent highs, while Infratil will remain in focus given its exposure to global digital infrastructure and the evolving AI investment theme,” he said in a note. “The market remains highly sensitive to developments in inflation, oil prices and geopolitics, making for another potentially volatile trading session.”

Australian futures were pointing to a 0.4% decline for the S&P/ASX 200 index when trading opens across the Tasman, after miners were knocked by weak gold prices on Wednesday. Gold futures fell 3.7% to US$4,126 an ounce at 7am.  

There’s no major local data scheduled for today, while finance company General Capital goes ex-dividend today.

Reporting by Paul McBeth. Image from Jonathan Ardila on Unsplash.