US Strikes Iran, Sending Oil Prices Soaring as ASX Falls

The US military has carried out 'self-defence' strikes in southern Iran, targeting Iranian missile launch sites and boats that were placing mines. This move has sparked a surge in oil prices and sent the Australian sharemarket lower. The strikes, which took place south of Larak Island in the Strait of Hormuz, resulted in the deaths of several Iranian personnel, according to Iran's state-run Nour News. They're saying several personnel died in the strikes.

The Australian sharemarket opened lower, with the S&P/ASX 200 down 56.4 points, or 0.7 per cent, to 8635.60 just before 11am AEST. Banks and property trusts led the losses. Commonwealth Bank was down 1 per cent. Westpac lost 1.2 per cent. ANZ Bank shed 0.9 per cent. The downturn came after the ASX rose 0.4 per cent on Monday. Hopes for a deal to end the US-Iran war had bolstered investor confidence and pushed down oil prices. It's clear that the conflict has been affecting the market.

The US-Israeli attack on Iranian forces has raised doubts about an imminent end to the war. President Trump had suggested earlier that negotiations with Iran were 'proceeding nicely'. However, the conflict has had a significant impact on the global economy. The critical waterway of the Strait of Hormuz has been all but closed since the US and Israel attacked Iran in late February. This has triggered an energy shock and a wave of global inflation.

The economy won't recover quickly from this shock.

Energy stocks were mixed after oil's slump on Monday. Woodside was down 0.8 per cent. Santos was up 0.5 per cent. Ampol lost 1 per cent. Viva Energy was flat. The renewed fighting has highlighted the fragile nature of the existing ceasefire. Expectations of a longer truce and the reopening of the strait are now in doubt. Brent crude turned higher again after the reports of the latest skirmishes. It rose 1.6 per cent to $US97.68 a barrel. Oil prices won't drop anytime soon.

In other news, Kogan shares jumped 16.9 per cent. The online retailer reported a 25.4 per cent increase in earnings to $26.9 million in the 10 months to April 30. The company's Mighty Ape business turned around. Kogan.com showed strong profitability. The improvement in risk sentiment followed weeks of stalemate between the US and Iran.

Global stocks rose to record highs overnight. Crude oil fell after officials signalled the US and Iran were nearing a deal to reopen the strait and restore oil flows. Investors don't want to miss out on the potential gains.

'A clear FOMO factor contributes to unexpectedly strong global risk appetite: investors don’t want to be left out if the Iran war comes to an end while the AI theme continues to lift the stock market,' said Dana Malas, a strategist at SEB. The hopes of an end to the war had spurred markets around the world overnight. The MSCI All Country World Index rose 0.5 per cent to an all-time high closing level. Europe's benchmark Stoxx 600 gained for a sixth straight session. It closed at the highest level since the outbreak of the war.

Trading volumes were light. Some markets, including the UK, Switzerland, Norway, and Denmark, were closed for holidays.

The US Federal Reserve may have enough reason to justify an interest rate cut rather than a hike under new chairman Kevin Warsh. Warsh, who has promised the biggest shakeup in decades at the US central bank, was sworn into office on Friday. President Trump stressed that he wants Warsh to independently lead the Fed. He looked to downplay investor concern that he would pressure the new central bank chief on policy decisions. The Fed won't make any decisions without careful consideration.

China has launched an unprecedented campaign against illegal cross-border trading. The goal is to stem capital outflows. China is threatening severe penalties against popular brokers. It's ordering non-compliant accounts to be liquidated within two years. The move is part of Beijing's efforts to maintain control over the country's financial system. China can't afford to let capital flow out of the country.

The situation in the Middle East remains volatile. The conflict between the US and Iran has significant implications for the global economy. The surge in oil prices has already had an impact on the Australian sharemarket. Investors will be closely watching developments in the region. They're waiting to see what happens next. The conflict won't be resolved anytime soon, and it's likely to affect the economy for a long time.