SYDNEY: Wall Street share futures slipped on Monday (Jun 23) and oil prices briefly hit five-month highs as investors anxiously waited to see if Iran would retaliate to US attacks on its nuclear sites, with resulting risks to global activity and inflation.
Early moves were contained, with the dollar getting only a minor safe-haven bid and no sign of panic selling across markets. Oil prices were up around 2 per cent, but already well off their initial peaks.
Optimists were hoping Iran might back down now its nuclear ambitions had been curtailed, or even that regime change might bring a less hostile government to power there.
Analysts at JPMorgan, however, cautioned that past episodes of regime change in the region typically resulted in oil prices spiking by as much as 76 per cent and averaging a 30 per cent rise over time.
Key will be access through the Strait of Hormuz, which is only about 33km wide at its narrowest point and sees around 20 per cent of the world’s daily oil consumption.
“With the US becoming involved, the risk of Iran retaliating by disrupting the flows of oil from the Middle East has risen significantly,” warned analysts at ANZ. “Prices in the US$90–95/bbl range would be the likely outcome.”
For now, Brent was up a relatively restrained 1.9 per cent at US$78.46 a barrel, while US crude rose 2 per cent to US$75.30. Elsewhere in commodity markets, gold edged up 0.2 per cent to US$3,375 an ounce.
Share markets were proving resilient so far, with S&P 500 futures off 0.3 per cent and Nasdaq futures down 0.5 per cent, having both started with losses near 1 per cent.
Nikkei futures were just a fraction lower at 38,380, pointing to a small opening fall for the cash index.
The dollar edged up 0.2 per cent on the Japanese yen to ¥146.36, while the euro dipped 0.3 per cent to US$1.1485. The dollar index firmed 0.25 per cent to 99.008.
There was also no sign of a rush to the traditional safety of Treasuries, with futures up only 1 tick.
Futures for Federal Reserve interest rates were a tick lower, likely reflecting concerns a sustained rise in oil prices would add to inflationary pressures at a time when tariffs were just being felt in US prices.
Markets are still pricing a slim chance the Fed will cut at its next meeting on Jul 30, even after Fed Governor Christopher Waller broke ranks and argued for a July easing.
Most other Fed members, including Chair Jerome Powell, have been more cautious on policy leading markets to wager a cut is far more likely in September.
At least 15 Fed officials are speaking this week, and Powell faces two days of questions from lawmakers, which is certain to cover the potential impact of President Donald Trump’s tariffs and the attack on Iran.
The Middle East will be high on the agenda at a NATO leaders meeting at the Hague this week, where most members have agreed to commit to a sharp rise in defence spending.
Among the economic data due are figures on US core inflation and weekly jobless claims, along with early readings on June factory activity from across the globe.
