What Iran crisis means for rate cut
In mixed news for households, the conflict between Israel and Iran is unlikely to impact future rate cuts unless the worst-case scenario plays out.
Economics forecasts say the conflict that started on Friday will add about 0.2 per cent to headline inflation on the back of higher petrol prices.
AMP chief economist Shane Oliver told NewsWire the escalation just added more 'uncertainty' but hadn't changed the probability of a July rate cut.
'I don't think the probability of a July cut has changed, we still expect a rate cut in July, August, November and February, taking the official cash rate to 2.85 per cent,' he said. Petrol prices could jump on the back of the Israel-Iran crisis. NewsWire / John Gass Credit: News Corp Australia
IG market analyst Tony Sycamore said it would all depend on the fallout, with the worst-case scenario being Iran blocks the Strait of Hormuz, which is the primary route for oil producers including Saudi Arabia, Iraq, the UAE, and Kuwait.
While pointing out blocking the Strait of Hormuz was a 'last resort' move by Iran, Mr Sycamore said if it did happen, it could impact interest rates.
'This would hamper central banks' ability to cut interest rates to cushion the anticipated growth slowdown from President Trump's tariffs, which adds another variable for the Fed to consider when it meets to discuss interest rates this week,' he said.
Mr Oliver agreed, saying any blockage could lead to a dramatic spike in oil prices.
'During the Ukraine conflict we saw oil get to above $US120 a barrel, which would see petrol prices push well above $2 a litre, impacting inflation and more importantly household spending power,' he said.
'The RBA would then have to work out what is more important and I suspect they would look through the inflation spike and be more concerned about the negative impact on economic growth.' Higher oil prices could flow through to the wider economy. NewsWire/ Gaye Gerard Credit: News Corp Australia
Regardless of whether it sways the Reserve Bank of Australia, the fallout will still hurt Australian consumers.
Futures markets for Brent oil have spiked in recent days and are now pricing $US77 a barrel when it was just more than $US65 this time last week.
Every $US1 increase in the price of oil roughly adds 1 cent a litre to how much Aussies will pay when they fuel up.
MST Financial senior energy analyst Saul Kavonic warned that 'higher oil prices will flow directly through to the pump', adding to the cost-of-living pressures.
'If you start to see prolonged higher prices or even an energy crisis scenario, it will also flow through to our electricity prices via international gas prices,' Mr Kavonic told the ABC.
He said this would eventually hit Australian consumers.
'It will flow through to the cost of living because nearly every single thing that you buy and use on a day-to-day basis has energy as a core input cost along its supply chain,' Mr Kavonic said.
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ABC News
43 minutes ago
- ABC News
Financial markets weigh up conflict
Samantha Donovan: Investment analysts say the Israel-Iran conflict is seeing an uneasy calm on global financial markets. AMP's Shane Oliver helps manage billions of dollars for the superannuation firm AMP. He's told our business correspondent David Taylor that calm could disappear if Iran decides to close the Strait of Hormuz, a critical sea passage for the world's oil supply. Shane Oliver: The financial markets seem fairly relaxed about things. There was the initial knee-jerk reaction a week or so ago when the news struck that Israel had hit targets in Iran and that Iran was retaliating. So, you saw this initial knee-jerk reaction. Oil prices sort of rose from about $68 a barrel to $74 or thereabouts. Share markets came down a bit. Ever since then, they've sort of been treading water waiting to see what happens. Of course, at the back of everyone's mind, there's always this fear that we're going to see a rerun of what happened in 1973 or 1979. But most of the time, that doesn't happen. This time around, though, there's probably a bit more nervousness simply because Iran has potentially getting closer to nuclear capability, nuclear weapons capability, and of course, Israel is determined to wipe that out. So that's why the situation is a lot more tense this time around. But I think investors are still thinking, well, maybe it'll turn out OK and be a non-event. David Taylor: When Donald Trump says via the White House press secretary that he's simply going to make it as he wants an extension for two weeks, he's going to make a decision within two weeks or at the end of two weeks, you're the ANP's strategist for a lot of money, a lot of investments. When you hear something like that, what's your thought? Is your thought that he's stalling or is your thought that markets simply just have to wait day by day as to what's going to happen next? Shane Oliver: Yeah, I guess his eyes done a very good job in terms of Iran, got the situation to a point where they can almost wipe out Iran's nuclear capability. And so maybe he should take that point. On the other hand, he worries that it could just lead to a worse situation, retaliation by Iran against shipping through the Strait of Hormuz, through which 20 per cent of global oil supplies flow on a daily basis, and that it might bog the US down in a longer-term conflict. So the fact that he's thinking about it, I think, is a good sign. By the same token, it may just be giving more time for Iran to come to the party and surrender unconditionally. So it could be about that. Or alternatively, it could just be giving more time for the Israelis and the US to prepare the situation to go into trying to take these strikes. But the fact that it's not happening rashly, I think, is a good thing that he is thinking about it. So that gives me a little bit of comfort. And that's, I think, why share markets have ended the week, at least in the Australian time zone, reasonably in a reasonably calm mode. You haven't seen this sort of freefall that might have occurred if we'd gotten up in the morning and found that the US had struck Iran. David Taylor: But I guess that's a possibility still. Shane Oliver: It's still out there. It's still a possibility. I mean, the best outcome for everyone is Iran comes to the table and says, yeah, we're going to negotiate. We'll give you clear access to inspect nuclear facilities to make sure that we're not building nuclear weapons. That's probably the best outcome for everyone. The situation in the Middle East settles down. Oil prices fall back to where they were a few weeks back. And we move on to the next thing, back to focusing on tariffs. But it looks like we could be in for a period of uncertainty regarding this, not only whether the US will act, but when they do, how Iran then responds. And this could take some time before it's finally resolved. And then if Iran does respond and disrupt shipping, they don't have to block the whole of the Strait of Hormuz. They just have to provide enough of a threat to stop shipping going through there. Then how long it takes for the Americans to clear the situation again and remove the threat. And all of that could take quite a while. Samantha Donovan: That's AMP's Head of Investment Strategy, Shane Oliver. He was speaking with our business correspondent, David Taylor.
Perth Now
2 hours ago
- Perth Now
Wall St edges up,Trump's Mideast decision in focus
Wall Street's main indexes have nudged higher, tracking strength in global stocks after President Donald Trump held off from making an immediate decision on US involvement in the Israel-Iran war. Trump will take a call in the next two weeks, the White House said on Thursday, as hostilities between the two Middle Eastern countries approached their second week. Markets have been on edge as Trump has kept the world guessing on his plans - veering from proposing a swift diplomatic solution to suggesting the US might join the fight as Israel aims to suppress Tehran's ability to build nuclear weapons. A senior Iranian official told Reuters Tehran was ready to discuss limitations on its uranium enrichment, but zero enrichment will be rejected "especially now under Israel's strikes". Foreign Minister Abbas Araqchi has arrived in Geneva to meet European counterparts, who are hoping to establish a path back to diplomacy. "Any news flow that's going to lean in the direction of de-escalation is going to be a market positive and we're seeing that to a certain extent here," said Art Hogan, chief market strategist at B. Riley Wealth. Concerns about price pressures in the US were also in focus after Federal Reserve policymakers on Wednesday warned inflation could pick up pace over the summer as the economic effects of Trump's steep import tariffs kick in. They kept interest rates unchanged. On Friday, Fed governor Chris Waller said the central bank should consider cutting interest rates at its next meeting given recent tame inflation data and because any price shock from tariffs will be short-lived. In early trading on Friday, the Dow Jones Industrial Average rose 123.38 points, or 0.29 per cent, to 42,295.04, the S&P 500 gained 13.34 points, or 0.22 per cent, to 5,994.21 and the Nasdaq Composite gained 38.74 points, or 0.20 per cent, to 19,585.01. Nine of the 11 major S&P 500 sub-sectors rose. Real estate led sector gains with a 0.7 per cent rise. On the flip side, healthcare stocks lost 0.5 per cent. All three main indexes are set for weekly gains. Investors are also bracing for any potential spike in volatility from Friday's "triple witching" - the simultaneous expiration of single stock options, stock index futures, and stock index options contracts that happens once a quarter. Among megacap stocks, Apple advanced 1.3 per cent. Kroger rose 6.4 per cent after the grocery chain increased its annual identical sales forecast. Mondelez International gained 2.4 per cent after brokerage Wells Fargo upgraded the Cadbury parent to "overweight" from "equal-weight". Accenture fell 7.2 per cent after the IT services provider said new bookings decreased in the third quarter. Wall Street's strong gains last month, primarily driven by a softening in Trump's trade stance and strength in corporate earnings, had pushed the benchmark S&P 500 index close to its record peaks before the ongoing conflict in the Middle East made investors risk-averse. The S&P 500 index now remains 2.4 per cent below its record level, and the tech-heavy Nasdaq is 2.8 per cent lower. Advancing issues outnumbered decliners by a 2.16-to-1 ratio on the NYSE and by a 1.45-to-1 ratio on the Nasdaq. The S&P 500 posted 12 new 52-week highs and 2 new lows while the Nasdaq Composite recorded 55 new highs and 31 new lows.
Sky News AU
5 hours ago
- Sky News AU
Global Islamic politics expert says Israel's claims about Iranian nuclear weapon 'at odds' with intelligence reports as Netanyahu 'desperate' to involve Trump in war
An Australian global Islamic politics expert has urged the world to be "sceptical" of Israeli Prime Minister Benjamin Netanyahu claims after numerous intelligence reports concluded that Iran is not "close at all" to building a nuclear weapon. Professor Greg Barton from Deakin University told Sky News Netanyahu's strategy to close down Iran's nuclear program may not be as "clear cut and simple", as he would present it to be to President Donald Trump, in an attempt to persuade the US to join the Israeli assault. "I think that the way that Benjamin Netanyahu will sell it to Trump is that you just send in a couple of B2s over Fordow and it's done," Mr Barton told Sky News host Steve Price. "You've closed down the nuclear program and we're good. "But of course, it is not likely to be so clear cut and so simple." According to Axios, President Trump believes the US has leverage over Iran due to its bunker buster munitions – which Israel does not have – that are capable of destroying the Fordow nuclear enrichment facility that sits deep under a mountain. Mr Barton added the bunker buster bombs are unlikely to demolish Iran's nuclear program and could instead result in dangerous escalation of war in the Middle East. 'First of all, those B2 strikes with massive ordnance, penetrator bombs over Fordow, 90 metres underground, that likely wouldn't finish Iran's nuclear program,' he said. 'They'd probably scramble to take what they have left and actually move towards nuclear weapons. 'In the meantime, they're likely to strike out against US targets all around the Middle East and use their proxies to do so. 'So a very dangerous risk of escalation and a prolonged conflict.' When questioned about the validity of Netanyahu's claims about Iran's existential threat to Israel, Mr Barton said they were 'at odds' with other publicly available intelligence reports have said, including what Trump was briefed on by his own security adviser. Mr Barton highlighted Israel's remarkable capabilities at penetrating Iranian society and its defence apparatus, but noted other intelligence reports suggest 'Iran is some way off, it's not close at all' to building a nuclear weapon. 'It is possible they know something that no one else knows, but what all the other intelligence reports are saying is that Iran is some way off, it's not close at all,' he said. 'We can't know, we're sort of making a claim from Netanyahu who is desperate to involve Trump and America in this programme, and on balance you sort of want to be a bit sceptical about what he's saying for that reason.' Israel has been trading missiles with Iran since last Friday in an attempt to shut down any efforts of Tehran building an atomic weapon to wipe out the existence of the Jewish state. Netanyahu said the operations were to "strike the head of Iran's nuclear weaponisation program". White House press secretary Karoline Leavitt told a media briefing on Thursday, local time, she had been asked to pass on a 'direct quote' from President Trump on the possibility of US intervention in the Israel-Iran war. 'Based on the fact that there is a substantial chance of negotiations that may or may not take place with Iran in the near future, I will make my decision whether or not to go within the next two weeks,' she said, quoting the President. Ms Leavitt also urged sceptics of US involvement to 'trust' in President Trump's judgement, before emphasising his 'top priority' was to prevent Iran acquiring a nuclear weapon.
