The Overnight Report: Tensions Ease, Markets Up

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Middle East tensions haven’t escalated which allowed markets to reverse last Friday’s risk off trade and buy-the-dip, notably in technology stocks.

After a positive day on the ASX200 yesterday, futures are indicating a slightly higher start for Tuesday.

Good Morning,

Overseas markets rose on the back of reports Iran is seeking to negotiate an end to the conflict with Israel. The AI trade is back and Big Tech is rallying, pushing the Nasdaq index up higher than S&P500 and the Dow.

Uranium stocks were in focus yesterday, topping the best performers with confirmation late in the day that Sprott Physical Uranium Trust was raising US$100m.

The deal is reported as raising US$200m overnight, positive for uranium stocks and price, with short interests scrambling to cover the positions.

What happened overnight, extract from ANZ Bank Australian Morning Focus

Equities gained on reports that Iran is seeking a ceasefire in the conflict with Israel and is wanting to restart talks over nuclear programs. The S&P500 was up 0.9% and the Dow Jones up 0.8%. The Euro Stoxx 50 rose 0.9% and the FTSE100 rose 0.3%. 

The yield on the US 10yr note rose 2bps to 4.45%. Oil fell, with WTI down to US$71.8/bbl, while gold was at US$3,384/oz.

Geopolitics and regional conflicts have been an inescapable risk this year for markets, which are behaving in a resilient fashion amid less fractious US trade negotiations. 

President Trump is hoping to make progress on trade issues at the G7 meeting this week, where leaders from the EU and Japan will be available. 

It is also a busy week for central bank meetings and economic data. We expect the Fed to keep rates on hold and will be analysing the updated Summary of Economic Projections for the latest guidance on how the FOMC views current risks and uncertainties affecting the economy. 

We will also be watching to see if Fed Chair Powell provides date-based guidance on how long the Fed will remain patient for. 

In the UK, we expect the BoE to keep interest rates unchanged, but the deteriorating growth backdrop will necessitate future rate cuts. Wage growth is moderating, but slowly. That will keep rates on hold this week. 

As the second half of 2025 unfolds, we expect weakness in the economy and labour demand to drive greater disinflation, allowing for three -25bps cuts by year end. 

In Japan, the BoJ has recently slashed its growth forecast and will be keeping rates on hold for the foreseeable future as trade uncertainty weighs.

Commodities:  Energy markets gave up some gains amid signs Iran is looking to return to the negotiating table. Base metals edged higher as inventories continue to fall.

Crude oil gave back some of last week’s gains as the Israel-Iran war failed to disrupt oil supplies. Hostilities entered their fourth day, with both sides claiming success in their missile attacks. Since Israel’s earlier attack on gas processing plant in Iran, there has been little signs that it would broaden to include its oil export facilities. 

The possibility of an escalation in the conflict also fell after reports emerged Tehran was open to returning to the negotiating table if the US doesn’t join the attack. After threatening to push above US$80/bbl, brent crude oil ended the session down approximately -2%. 

Nevertheless, the nature of Israel and Iran’s attacks on each other over the weekend suggests risks to the oil market have escalated in this latest phase of the Middle East conflict. The main issue the market will have to watch for, however, is whether Iran’s retaliation broadens outside of Israel to disrupt oil flows in the Persian Gulf’s Strait of Hormuz. 

Over 17mb/d of oil supply transiting the Strait would be at risk. We view this, however, as unlikely. For the moment, the effects have been confined to the shipping market. Some shipowners are reluctant to accept bookings in the region citing safety concerns. Benchmark supertanker rates from the Middle East to China surged more than 20% on Friday. 

Given the level of spare capacity available, we view the risk of oil prices pushing above US$100/bbl as relatively low. 

However, we’re likely to see a geopolitical risk premium priced into oil markets for foreseeable future. 

The prospect of a de-escalation in tensions in the Middle East also led to European gas futures giving up the previous session’s gains. Like the oil market, natural gas traders remained concerned that shipments could be disrupted through the Strait of Hormuz. For now, physical deliveries of LNG cargoes appear to be largely unaffected, with the only hinderance coming from the jamming of navigational signals in and around the Persian Gulf. 

Gold also gave up some gains amid the reduced demand for haven assets. However, a weaker USD could provide some support. A survey by Bank of American showed investors are setting up for further weakness, with a short USD the most crowded trade. 

Copper managed to edge higher following stronger than expected economic data out of China. Retail sales grew last month at the fastest pace since 2023, boosting an economy that has been strained by the trade war and a property crisis. 

Strong demand is also evident, with LME’s European warehouses recording a drop in stockpiles for 25 consecutive days. This mirrors activity in the aluminium market, where inventories in China are at their lowest point for this time of year since 2016. 

Iron ore fell after data showed China’s steel production fell -6.9% in May. This is its first contraction since Beijing vowed to address a glut in March.

Corporate news in Australia

-Santos ((STO)) backs the $30bn takeover bid from a consortium led by Abu Dhabi’s Adnoc. Headquarters are slated to remain in Adelaide. The deal is subject to FIRB approval.

-Tourism Holdings ((THL)) received a takeover offer from BGH Capital and Trouchet Family for $472m.

-Subject to regulatory approval, Apollo has agreed to sell 4.8% of its stake in Challenger ((CGF)) at $7.45 to Tal Dai-ichi Luje which will take the latter’s stake to 19.9% the maximum without launching a bid.

-Aurizon Holdings ((AZJ)) has won a 15-year copper logistics contract from BHP Group ((BHP)) which will lower truck travel distance by 13km.

-PointsBet Holdings ((PBH)) has rejected the bid from Betr Entertainment ((BBT)) and endorsed the Mixi offer at $1.20.

-ASIC launches an inquiry into ASX ((ASX)) over governance and Chess project issues.

-Mineral Resources ((MIN)) and Ganfeng are both investing -$150m to keep the Mt Marion lithium mine liquid.

-Rio Tinto ((RIO)) and BHP have received environmental approval for the Resolution Copper project.

On the calendar today:

-JP BoJ rate

-EZ June ZEW

-US May Retail sales

-IVE GROUP LIMITED ((IGL)) investor briefing

FNArena’s four-weekly calendar: https://fnarena.com/index.php/financial-news/calendar/

The Australian share market over the past thirty days

For more detail go to FNArena’s Australian Broker Call Report, which is updated each morning, Mon-Fri.

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