Global markets are facing a new phase of energy shock as tensions persist. This comes amid ongoing exchanges between Iran and the United States. The speaker of Iran’s parliament suggested investors do the opposite of pre-market “news,” indicating potential profit-taking schemes. Equity markets initially showed positivity, mirroring hopes for peace, but soon declined as hostilities remained. The technology-heavy Nasdaq index experienced a significant drop, entering correction territory, with major tech stocks like Microsoft and Meta Platforms declining substantially from their record highs.
Hedge fund billionaire Bill Ackman has suggested investors ignore mainstream media and buy quality stocks, arguing that some of the highest quality businesses in the world are trading at extremely cheap prices. However, the bond market signaled growing concerns, with US Treasury yields falling sharply after Federal Reserve chairman Jerome Powell indicated the central bank would consider the energy shock when deliberating rates. This was perceived as a possible return of rate cuts, previously dismissed.
West Texas crude oil prices have surged above $US100 a barrel, a level unseen since Russia’s invasion of Ukraine in 2022. Analysts indicate that previous buffers in the oil market have diminished, leading to supply shortages across sectors like fertilisers, chemicals, and aluminium. Rising prices of refined oil products, such as jet fuel and diesel, are creating shocks in various sectors. Bloomberg columnist Javier Blas suggests demand destruction is necessary, recommending measures like lower speed limits and reduced heating/cooling to minimise economic impact.
The Australian government’s decision to cut the fuel excise, intending to provide cost-of-living relief, contrasts with the Victorian government’s approach of offering free public transport to manage demand. While the Albanese government’s fuel excise cut aims to alleviate pressure, it simultaneously maintains fuel demand when a reduction is economically prudent. Conversely, initiatives like free public transport offer a sensible means of curbing demand while easing living expenses. The market continues to make a risky bet that this war will be resolved quickly.
