By Gus McCubbing
Investors tentatively emerged from their bunkers on Tuesday to buy up everything from stocks to gold after United States President Donald Trump boosted hopes of an imminent de-escalation of the Iran war that has erased trillions of dollars from financial markets.
Less than 24 hours earlier, the Australian sharemarket had tumbled to a 10-month low after Trump delivered a 48-hour ultimatum to Iran, warning that America would “obliterate” the country’s oil assets if the regime did not reopen the Strait of Hormuz. Closure of the strait has led to a chronic fuel shortage.
Then on Tuesday, as Trump said he had postponed the military strikes for five days because of what he described as productive talks with Tehran, animal spirits returned to financial markets.
At least for a moment.
Just three hours into Australia’s trading day, the S&P/ASX 200 Index had erased much of the rebound as traders started to doubt Trump’s latest declaration that “war is coming to an end”.
“Never before has a president’s social media feed wielded such raw, short-term power over sentiment,” said Antipodes portfolio manager James Rodda. “Until we see concrete evidence on the ground, brace for violent swings on every tweet, rumour and headline.”
Calm returns to bond market
Early on Tuesday, investors had snapped up everything from beaten up airline stocks and bitcoin, which climbed back above $US70,000, to miners of copper, an industrial metal viewed as a bellwether for the global economy.
Gold regained its lustre, edging back above $US4400 an ounce, after the precious metal, traditionally a safe haven asset during times of war, had plunged the most since the 1980s.
Calm also returned to the bond market, with Australia’s three-year government yields easing back to 4.74 per cent, from a 15-year peak of 4.92 per cent on Monday, and the 10-year back near 5 per cent.
But the jubilation soon faded as Iran’s denial of talks with the US weighed on investor sentiment along with a Wall Street Journal report that US allies in the Persian Gulf were close to joining the fight against Iran.
The ASX 200, which was expected to rally more than 2 per cent when the market opened, finished the day up just 0.2 per cent. About $300 billion has been erased from the index since its March peak.
By the close of trading in Australia, bitcoin had pared its gains, gold pulled a U-turn to fall nearly 2 per cent, US futures had fallen into the red and Brent was back above $US100 a barrel.
“The market is pretty spooked right now – investors are nervous and sceptical,” said Wilson Asset Management strategist Damien Boey.
‘Ships, not soundbites’
Strategists had already warned overnight that the champagne corks may have been popped too early on Wall Street after the S&P 500 closed up 1.2 per cent.
RBC Capital Markets’ head of global commodity strategy, Helima Croft, said it was still unclear how far back-channel talks between the US and Iran had actually progressed, or if Iran’s Islamic Revolutionary Guard Corps was in any mood to settle while they remained in control of the Strait of Hormuz.
Because no sooner had Trump claimed the war would soon be over, than Iran said it was firing missiles and drones at Israel and US targets. In Tehran, the supreme leader’s military adviser said the war would continue until all sanctions were lifted.
“All this underscores the essential fact that we are not dealing with single decision-maker dynamics,” Croft told clients on Tuesday. “Multiple stakeholders have a say in how this war ends, and ships, not soundbites, will likely be what ultimately matters for physical markets,” she said.
Fund managers have been navigating the volatility differently.
Whereas mining investors including Perennial’s Sam Berridge have sold gold stocks amid worries about a diesel crisis in Australia, others such as Seneca’s Luke Laretive have been topping up their holdings.
Laretive has bought more shares in oil refiner Viva Energy, as well as software names including Objective Corp and Catapult.
“Yo-yoing markets have become a feature of a Trump presidency,” he said. “But it’s an opportunity to acquire businesses that are pricing in low-probability disaster scenarios.”
Minotaur Capital portfolio manager Thomas Rice said he had jumped on Chinese electric-vehicle maker BYD because the conflict had forced a rethink on energy security in a way that would benefit companies exposed to electrification.
“One thing that’s really stood out through this period is that diversification hasn’t been the beneficiary it usually is,” he said.
“Defence stocks have underperformed relative to what you’d expect, and precious commodities haven’t provided a reliable hedge either. That partly reflects profit-taking, but it also speaks to how messy and non-textbook this market has been.”
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