Fresh military strikes between the United States and Iran over the weekend are poised to drive up energy prices and potentially weigh on the Australian sharemarket, as investors brace for the prospect of higher interest rates. The US launched strikes against three Iranian crude oil tankers in retaliation for the Islamic Revolutionary Guard Corps attacking two US Navy warships. US Central Command confirmed Saturday that two Iranian tankers were disabled near Kharg Island, with another destroyed in the Gulf of Oman, signalling a shift towards a deeper conflict after six months of sporadic war. Ray Attrill from National Australia Bank warned of additional strength in oil prices at the start of the week, extending a “risk-off” tone.
The escalating tensions are intensifying pressure on global oil markets. Brent crude futures have already climbed to US$96.28 a barrel, building on an almost 8 per cent jump last week due to impaired Middle East supply routes. Citi revised its third-quarter Brent crude price forecast to US$86 a barrel from US$80, citing delays in reopening the vital Strait of Hormuz. ANZ also lifted its short-term Brent crude forecast to US$95 a barrel, with a strategist noting the US-Iran confrontation has entered a new phase, making an imminent diplomatic solution remote. These soaring oil prices are fuelling a global bond market meltdown, pushing borrowing costs to multi-decade highs as central banks fight runaway inflation.
Australia’s 10-year bond yields hit a 15-year high of 5.2 per cent last week, amidst global inflation concerns. A robust US jobs report for August, with 162,000 new jobs, nearly tripled forecasts, significantly raising the probability of a US Federal Reserve interest rate hike this month and sparking a broad sell-off on Wall Street. Money markets now imply a 73 per cent chance the Reserve Bank of Australia will deliver its fourth rate increase this year to 4.6 per cent at its September 28-29 policy meeting. This week, attention will focus on RBA speeches for further interest rate clues. Key global events include the European Central Bank meeting and Friday’s US Consumer Price Index release.
