Market Overview
Financial markets continued to sell off over the week as the Middle East conflict intensified, with the US and Iran both escalating their attacks. The recent deaths of several US service personnel make any near-term peace agreement appear increasingly unlikely.
Oil prices jumped sharply, with Brent crude climbing back above US$90 per barrel, reflecting the heightened risks from the renewed fighting. Commercial tanker traffic out of the Persian Gulf has effectively ground to a halt, with the Strait of Hormuz nearly closed.
Middle East Conflict and Oil Outlook
Although the US says talks with Iran are ongoing, meaningful progress looks unlikely in the near term. With the US bombing campaign yet to force any concession from Iran, the risk of the conflict spreading further remains real, adding further pressure to markets.
Compounding this, oil inventories were already drawn down during the early phase of the conflict, reinforcing our core view that oil prices will remain higher for longer.
Global Markets and Economic Data
Beyond the Middle East, markets also faced pressure from growing concerns around the AI sector, which has driven sharp volatility in global equity markets. This was particularly evident in Korea, where the Kospi fell 24.7% month-on-month as share prices in companies such as SK Hynix and Samsung Electronics swung dramatically.
On the economic front, recent US CPI and PPI figures came in below expectations, largely due to lower energy prices. However, this relief may prove temporary and does little to ease pressure on the Federal Reserve.
With the US quarterly earnings season now underway, markets will be watching corporate results, economic data, and geopolitical developments closely. The key US releases this week are PMI and housing data.
What to Watch This Week
In Australia, attention will turn to labour force figures, with the unemployment rate expected to remain unchanged at 4.4%, alongside the latest PMI data.
In China, industrial profit figures will provide further insight into the health of the country's manufacturing sector.