The Overnight Report: Securing The Strait

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This story features RIO TINTO LIMITED, and other companies.
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The company is included in ASX20, ASX50, ASX100, ASX200, ASX300 and ALL-ORDS

US markets recovered off intraday lows on confirmation the US Administration is taking both measures (insurance & defense) to secure safe passage of oil and gas tankers through the Strait of Hormuz.

After a weak day on the Australian market yesterday, ASX200 futures are pointing to another weak start for Wednesday.

Good Morning,

The ASX200 retreated by -1.24% to 9077 amid tensions in the Middle East and concerns over an oil price shock as supply chains were challenged.

Energy was the only positive stand out on the day, trading at a one and a half year high.

Profit taking emerged in gold stocks, pulling the materials sector down -3.1%.

Coal miners were boosted by higher coal prices, up 8% on concern around Qatar LNG supplies.

NAB Markets Today Research extract

Risk sentiment has soured further overnight in conjunction with a broadening of the Iran conflict overnight, including further missile attacks from Iran into Israel and Saudi Arabia, and fading confidence this will be a ‘3-4 week affair’.

The FT carried a report last night citing an Iran regime insider saying Iranian forces have launched a plan devised by Ayatollah Ali Khamenei and Tehran’s top commanders to sow chaos across the Middle East, create upheaval in global markets, and raise the stakes in the hope of pressuring the US and Israel to halt their attack.

It says Khamenei and his lieutenants began working on a “detailed” plan after Israel’s devastating 12-day war against the republic last June. This plan included attacks on energy facilities and strikes that would cause disruptions to air travel in the region, he said.

“We had no choice but to escalate and start a big fire so everyone would see,” the regime insider said. “When our red lines were crossed in violation of all international laws, we could no longer adhere to the rules of the game.”

So far, events, one has to say, things are going to Iran’s plan.

The main data point of interest overnight has been Eurozone CPI, which sprang a significant upside surprise, the headline rate rising to 1.9% from 1.7% (1.7% expected) and the HICP measure leaping from 1.1% to 1.6% (1.1% expected) with the core measure to 2.4% from 2.2% (2.2% expected).

The winter Olympics in Milan are possibly one factor lifting prices above expectations, though together with various ECB commentaries noted below, Eurozone money markets have moved to price about a 50% change of an ECB interest rate hike this year.

In other European economic related news, UK chancellor Rachel Reeves delivered her (non-policy related) Spring Statement, the main feature of which her relaying of the latest Office of Budget responsibility (OBR) forecasts showing growth now expected to be just 1.1% this year down from 1.4% in November, despite which she said that the buffer with respect the OBR’s fiscal rules will increase to GBP23.6bn from GBP21.7bn estimated in November.

ECB chief economist Philip Lane told the FT prolonged war in the Middle East and a persistent fall in oil and gas supplies from the region could cause a “substantial spike” in inflation and a “sharp drop in output” in the Eurozone, the European Central Bank’s chief economist has warned.

Lane said he did not see any reason to change the central bank’s stance: “I think where we are now is OK.”. Governing Council member Kazaks said the longer oil prices remain elevatd, the more risk to inflation and that policy action may be needed later but not now.

From the Fed, NY Fed President John Williams said, predictably and along with various other central bank officials in the past 24 hours, the economic fallout from US-Israeli attacks on Iran hinges on how long they affect asset prices, especially the price of oil.

He said the impact on financial markets was so far “reasonably muted” and that oil prices have moved up but not yet “in a dramatic way.”

He reiterated past comments that additional interest-rate cuts will be warranted if inflation slows further once most of the impact of tariffs has passed.

More novel remarks came from Minneapolis Fed president Neal Kashkari who said he had expected one more Fed cut in 2026 but now he’s not so sure. He says he would love it if Jay Powell stayed on as Fed Governor (his term does not end until 2028).

He says it is too soon to see the inflation impact from Iran, but that inflation and the labour market currently feel more in balance.

Kansas City’s Fed’s Jeff Schmid noted inflation is still too hot, has been above the Fed’s objective for nearly five years and that “I don’t think we have room to be complacent.”

On the real economy, he says there is more anxiety around uncertainty of jobs and AI than there is about the economy, but that the one thing the Fed can do is keep pushing inflation down.

RBA Governor Bullock spoke Tuesday and the speech reiterated the themes of the February SoMP and the recent RBA communication.

The labour market is tight, there are economy wide capacity pressures, but there are also sector-specific demand and price pressures that the RBA expects to ease in coming quarters.

Bullock noted the staff’s view is the recent data flow broadly supports the Feb SoMP assessment.

The AFR’s John Kehoe in Q&A asked Bullock directly whether people are underestimating the prospect that the RBA could move at consecutive meetings.

She replied March would be ‘a live meeting’ and that the Board would be actively looking at whether they need to move more quickly.

Post Bullock’s remarks, market pricing for the March 17 RBA meeting shifted to show 6bps of tightening from 2-3bps beforehand, pricing which later lifted to around 8bps, or just over 30%.

The upward revisions for today’s Q4 GDP outcome following the last of the partial indicators imply an additional 0.2% GDP continuation from public sector inventories, on top of the 0.2% implied by Monday’s private inventory data.

Public demand increased 0.9% QoQ (consumption and investment each up by 0.9%) for a 0.3%ppts GDP contribution.

NAB was not alone in lifting its forecast to 1.0% (2.5% yoy), but it is important to stress domestic final demand is ‘only’ likely to print around 0.7% (2.6-2.7% yoy), which is softer than the RBA’s SoMP forecast of 3.1%.

This shouldn’t, therefore, add to the existing case for further RBA tightening, or in itself to risk for March over May, but for markets headlines (evidently) matter, while numbers such as this today will do nothing to detract from the argument that demand is too strong relative to the economy’s capacity to supply.

European bourses ended with losses mostly in the -3-4% range and in Asia, the Nikkei was down -3% and most others (including the ASX200) off -1-2%, excluding the Kospi which fell sharply.

The S&P500 fell -0.94% and was off -2.5% at the intraday low. Markets turned as President Trump indicated in the afternoon the US navy will escort tankers through the Strait of Hormuz if necessary.

“No matter what, the United States will ensure the FREE FLOW of ENERGY to the WORLD,” Trump said in a Truth Social Post. “The United States’ ECONOMIC and MILITARY MIGHT is the GREATEST ON EARTH — More actions to come.”

In bonds, Treasuries have pulled smartly from intra-day highs as noted above, after what was a very poor night for European 10-year benchmarks with gilts up 10bps, ditto Italy, with some signs of moves back to the (German) core from the periphery. Bunds up just 4bps vs 8.5bps for France, and Spain, Portugal, both up 7bps.

In FX, earlier in the night AUD was suffering more than most, down to a low of 0.6944 and where we’d posit that forced liquidation of speculative longs was a factor. The rebound has been impressive though, AUD/USD currently back up near 0.7050 and so off only -0.7% in the past 24 hours.

NZD has also rebounded, from a low of 0.5836 to now be close to 0.5900. Decent intraday turnarounds have also been evident for EUR/USD that had been down to 1.1530 (now 1.1623) and USD/JPY, down from a high of 157.97 to now 157.42.

The DXY dollar index is 0.6% up on the last 24 hours to 98.99, having briefly hit its best levels since the end of November 2025. De-dollarisation anyone?

ANZ Bank, Australian Morning Focus, Commodities extract

European natural gas futures hit a three year high on fears of ongoing supply disruptions in the Middle East. Uncertainty has enveloped the market after Qatar was forced to shut the Ras Laffan plant following an Iranian drone attack.

The facility accounts for a fifth of global LNG supply. Qatar also stopped production of some downstream products, including urea, polymers and methanol.

This came on top of shipping being severely disrupted through the Strait of Hormuz, a key waterway for the industry.

Concerns about further disruptions have seen China, the world’s largest LNG importer, ask all parties in the US-Iran conflict to allow safe passage of ships through the Strait.

Bloomberg also reported senior gas officials in China are pressuring Iranian officials to avoid action that would disrupt Qatari energy exports.

Alternative supplies look limited. Norway’s natural gas producers are operating near full capacity, leaving little ability to boost output.

European gas futures have risen more than 70% since Friday’s close. However, this still leaves prices well below levels hit during the energy crisis in 2022. That said, with the region coming to the end of the heating season, inventories are severely low.

Any ongoing disruption will severely hamper their ability to restock before winter 2026/27.

North Asian LNG prices also surged higher following the disruptions as Asian buyers scramble to find alternative sources.

Crude oil prices rallied for a second consecutive day as US and Israel stepped up their attacks on Iran. The sprawling conflict is raising concerns about its impact on energy infrastructure in the Persian Gulf.

Prices were up more than 10% following reports that Iraq had cut output at the giant Rumaila oil field and appeared poised to shutter about -3mb/d of output if the crisis persists, according to a Bloomberg report.

This comes as storage at the fields has been tightened because of disruptions in the Strait of Hormuz.

The market found some comfort as Saudi Arabia was said to be exploring the option of delivering more barrels from the Red Sea.

However, that route is not without its risks. Yemen’s Iran-backed Houthi militant group has threatened to resume attacks on vessels in the waterway.

The gains were also tempered by a report highlighting efforts by the International Energy Agency to stabilise global oil markets. The document, reported by Bloomberg, outlines the use of a coordinated global release of oil inventories.

IEA’s Fatih Birol said the agency has convened an unscheduled meeting of member governments to discuss the recent events in the Middle East.

Gold slumped on the back of a stronger USD and the prospect of less monetary easing. The greenback has rallied as traders scaled back their bets on the scope of interest rate cuts by the Federal Reserve. Inflationary risks from rising energy prices amid the US-Iran conflict are raising concerns central banks may be forced to hold rates steady or even hike them in coming months.

Gold also came under pressure from a deepening sell-off in equity markets, which forced some investors to liquidate positions in gold to meet margin calls.

Aluminium rallied amid further disruptions to supplies in the Middle East. Qatalum, jointly owned by Qatar and Norsk Hydro, started a controlled shutdown of output on Tuesday and said a full restart would take six to twelve months.

This follows attacks by Iranian drones which also forced the closure of Qatar’s LNG facilities. This has led consumers to withdraw metal out of exchange warehouses. Such orders on the LME more than doubled to 86,025t on Tuesday

Sweet & Sour: Yardeni Quicktakes, Ed Yardeni & Toby Hearst, extract:

I. Hot war with Iran and cold war with China

We remain in the short-war camp on the outlook for the current conflict in the Middle East. The stock market seems to agree, since it barely budged today, though defense stocks rose significantly.

Geopolitical crises tend to create buying opportunities in the stock market. The problem is that everyone knows that, which diminishes the magnitude of opportunities.

Following the assassination of Supreme Leader Ali Khamenei on February 28, Iran has activated a constitutional transition mechanism known as the “Interim Leadership Council” (or “Council of Three”). 

They represent the political, judicial, and clerical power centers and must nominate a new Supreme Leader.

The new chosen one had better be ready to follow the commands of the White House or meet the same fate as his predecessor. Iran’s foreign minister admitted that the country’s attacks on neighboring countries are literally out of control: Soldiers in the field have no command structure and are just following the last orders they received before their top commanders died.

America’s recent military actions in Latin America and Iran are designed to check China’s ambitions to dominate these regions. China imports lots of oil from Venezuela and Iran and has invested significantly in both countries. A stable Middle East would allow the US to position more of its military might in the Pacific and frustrate China’s plans to invade Taiwan.

II. US manufacturing showing more signs of life

Here at home, the US economy has been remarkably resilient in recent years despite weakness in manufacturing, which is finally showing signs of revival. The ISM Manufacturing PMI (M-PMI) has found its footing after a long stretch of sluggishness. The most recent reading for February 2026 came in at 52.4%, following a very strong January reading of 52.6%

III. US PPI inflation hotter than expected

January’s PPI report showed core inflation at 3.6% y/y, up 0.8% m/m, compared to the expected 0.3%. The headline inflation rate was 2.9%. Both PPI inflation rates have moved sideways in recent months rather than continuing to decline, suggesting the disinflation trend has stalled.

Much of the stickiness is concentrated in services inflation.

Supercore readings remain in the low-to-mid-3% range. We expect strong productivity gains to keep unit labor costs subdued this year, gradually easing services inflation.

Furthermore, once the war in Iran ends, we expect oil prices to fall.

Corporate news in Australia

-Swiss Partners Group is considering a bid for Infinity Pharmacy group, the owners of Priceline pharmacies, valued at $500m

-BGH Capital announced $2.4bn acquisition of Aspen Pharmacare’s Asia Pacific business quietly at the end of 2025

-Rio Tinto ((RIO)) is being challenged by investor Richard Magides to pay more than the 0.2c per share offered to acquire the 1.57% of Energy Resources of Australia ((ERA)) it does not own

-Pacific Green is looking to divest 100% of its 4.25GW Australian battery energy storage system platform 

-PlasmaLeap has secured $30m in funding lead by the Gates foundation as it aims to produce zero-emission ammonia and nitric acid

-Fletcher Building ((FBU)) secured a 10-year New Zealand highway maintenance contract

-Life360 ((360)) CEO Lauren Antonoff is slowing hiring as AI improves operational efficiency

-Pepperstone’s owners must pay $100m to CPE Capital following a profit dispute

-Acadia will challenge Europe’s rejection of its Rett syndrome treatment

-IREN is marketing in Sydney but remains cautious about building local data centres due to regulatory hurdles

On the calendar today:

-AU 4Q GDP

-CH Feb PMI Mfg

-CH Feb PMI, non-Mfg

-EZ Jan PPI

-CAPRAL LIMITED ((CAA)) ex-div 30.00c

-DETERRA ROYALTIES LIMITED ((DRR)) earnings report

-ENDEAVOUR GROUP LIMITED ((EDV)) 1H26 Earnings

-EVT LIMITED ((EVT)) ex-div 18.00c (100%)

-INTEGRAL DIAGNOSTICS LIMITED ((IDX)) ex-div 3.30c (100%)

-IDP EDUCATION LIMITED ((IEL)) ex-div 3.00c (50%)

-MONASH IVF GROUP LIMITED ((MVF)) ex-div 1.20c (100%)

-MAYFIELD GROUP HOLDINGS LIMITED ((MYG)) ex-div 2.00c (100%)

-NORTHERN STAR RESOURCES LIMITED ((NST)) ex-div 25.00c (100%)

-SGH LIMITED ((SGH)) ex-div 32.00c (100%)

-SONIC HEALTHCARE LIMITED ((SHL)) ex-div 45c (60%)

-SIGMA HEALTHCARE LIMITED ((SIG)) ex-div 2.00c (100%)

-SERVCORP LIMITED ((SRV)) ex-div 16c (100%)

-SHAVER SHOP GROUP LIMITED ((SSG)) ex-div 4.80c (100%)

-SOLVAR LIMITED ((SVR)) ex-div 2.50c (100%)

-SOLVAR LIMITED ((SVR)) ex-div 6.00c (100%)

-WEST AFRICAN RESOURCES LIMITED ((WAF)) earnings report

-WORLEY LIMITED ((WOR)) ex-div 25.00c

-WOOLWORTHS GROUP LIMITED ((WOW)) ex-div 45.00c (100%)

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

The Australian share market over the past thirty days…

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