Australian shares sink as Donald Trump’s Iran threat smashes investor confidence

The Australian sharemarket has plunged during morning trading, as mixed messages from the White House and further risks of rising oil prices smashed traders’ confidence.

Since the conflict between the US/Israel and Iran on February 28, the ASX 200 has fallen nearly 1000 points from its February 26 high of 9202.9.

In other words, the market has dropped by about $320bn in those three weeks.

Investors have been warned more turmoil is expected if the war continues, as US President Donald Trump made conflicting statements.

Overnight on Saturday Australian time, Mr Trump announced the conflict between US/Israel and Iran was “winding down.”

But on Sunday, he took to Truth Social to threaten a huge escalation in the conflict.

“If Iran doesn’t FULLY OPEN, WITHOUT THREAT, the Strait of Hormuz, within 48 HOURS from this exact point in time, the United States of America will hit and obliterate their various POWER PLANTS, STARTING WITH THE BIGGEST ONE FIRST! Thank you for your attention to this matter,” he wrote.

At 11.45am on Monday, the Australian sharemarket had dropped 130.40 points or 1.55 per cent to 8298.

Pepperstone head of research Chris Weston warns Mr Trump’s next steps would have major ramification for the market into months and quarter ends.

“Trump has had his TACO (Trump always chickens out) moments, but he has also shown credibility in following through with military action when demands are not met, so markets will place weight on his weekend post on Truth Social,” Mr Weston said.

“If we move past the deadline, focus will quickly shift to the scale of any action against Iran and the nature of Iran’s response, particularly toward US bases and its allies.”

Mr Weston said the sell-off was broad based with 79 per cent of stocks trading below their 50-day average.

“This points to broad participation in the sell-off and fewer areas for investors to hide as pressure builds,” he said.

US bonds and stocks were heavily sold off Friday, feeding into the negative outlook for Monday’s trade on the ASX.

The benchmark ASX200 fell 2.2 per cent last week and is down 7.2 per cent over the past month.

In hiking interest rates last week, Australia’s central bank governor Michele Bullock revealed modelling on the Iran war had not yet been factored in.

The Reserve Bank signalled that the possibility an extended period of high energy prices and uncertainty would degrade supply in the Australian economy and be inflationary.

Rising oil prices and the flow of impacts on the national economy led to more than $280bn being wiped from the local market, since the conflict began on February 28.

The Strait of Hormuz remains a key strategic point, with ships delivering around 20 per cent of the world’s oil and gas through the narrow waterway.

Since the conflict began the price of oil has surged from around $US56 ($A80) a barrel in January to over $US100 ($A142) a barrel.

AMP chief economist and head of investment strategy Shane Oliver says despite soaring oil prices, the market so far has been relatively tame.

“Global oil prices are up “just” 80 per cent from their January low (compared to the three or four fold increases of the 1970s oil shocks) and US shares have only fallen 7 per cent and the Australian share market has had a fall of around 8 per cent – both of which would count as a mild correction.”

Mr Oliver says global bonds have also risen since the conflict began as investors factor in higher inflation and the growing likelihood of rate pain.

He forecasts additional rate pain for homeowners following back-to-back rate hikes in February and March.

“We are now forecasting one more RBA rate hike in May,” he said.

“The RBA is clearly worried about the boost to already high inflation and higher inflation expectations than the hit to growth and March quarter inflation data will show a sharp spike in inflation if petrol prices stay at current levels.