The Overnight Report: War & Meta Pressure Tech

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The Nasdaq Composite index fell -2.4% overnight, down more than -10% from its October 29 high.

S&P500 closed at its lowest level since September, weighed down by uncertainty over the Middle East conflict and an important social media court case loss impacting on Meta.

ASX200 futures are pointing to a sharp sell off (another one!), as has been the trend recently into the close of the week. 

Good Morning,

Yesterday, the ASX200 eased -9 points of -0.1% to 8,526 with energy rising 1.5%, and tech falling -2.3%.

SPI futures are suggesting no relief in sight on Friday.

At least the weekend is beckoning.

J.L. Bernstein, Thursday Market Overview, extract

-Social Media’s Legal Shield Just Cracked

A jury found Meta and YouTube liable for harming a young user, and the ruling targets addictive product design rather than content.

That sidesteps Section 230, the law that has protected social media companies from liability for decades.

Meta lost -US$119 billion (down -8%) in market cap today alone. Thousands of similar cases are already filed and waiting. 

-Peace Talks Stall as Oil Climbs

Trump warned Iran to “get serious” before it is “too late.”

Tehran says it is reviewing the US proposal but refuses direct talks.

The Pentagon is reportedly preparing options to seize Kharg Island, which handles 90% of Iran’s crude exports, if diplomacy fails.

Brent closed above US$101 and I doubt shipping through the Strait restarts anytime soon despite what the Treasury is saying. 

-Global Economic Forecast Blows Up the Inflation Outlook

The OECD, a group of 38 major economies, now projects US inflation at 4.2# this year.

That is way above the Fed’s own 2.7% estimate from last week.

The group sees zero Fed rate cuts in 2026.

BlackRock’s Rob Kapito warned crude could hit US$150 even if a ceasefire happens tomorrow because supply chains do not snap back overnight.

Managing risk into the business end of the week, Chris Weston, Pepperstone extract

It’s been another session where cross-asset correlations have pushed closer to one, with crude once again acting as the first derivative and dictating the flows and price action across broad financial markets.

As oil moved higher, the familiar chain reaction played out, with crude volatility lifting, inflation expectations pushing higher, bond yields rising, the USD strengthening, and equities and gold coming under pressure.

Flows continue to reflect a repositioning into bearish risk exposures and long crude structures, driven by the ongoing lack of convergence in headlines around any meaningful diplomatic resolution.

Prediction markets reinforce this dynamic, with the probability of a ceasefire by April 30 now priced at 47%, and by May 31 at 59%.

There is also a well-defined behavioural pattern emerging. For the fourth consecutive week, de-risking into the weekend has begun earlier, typically from Thursday, and accelerated through Friday’s US session, as traders look to manage gap risk into the Monday open.

US trade was dominated by headlines highlighting continued divergence between negotiating parties, alongside increased rhetoric around potential US military involvement in Iran.

Brent Crude led the move, rallying from around US$103 in Asia to an intraday high of US$109, which in turn saw S&P500 futures grind lower towards 6520.

At the same time, US one-year inflation swaps rose 12 basis points, and two-year breakeven rates pushed 11 basis points higher into the cash close.

This backdrop drove increased selling of Treasuries and demand for USD, with pro-cyclical currencies such as the Korean won, Australian dollar, South African rand, and Chilean peso all coming under pressure.

Gold also failed to attract safe-haven demand, with the yellow metal once again trading as the “anti-bond”, and selling accelerating on the break of Wednesday’s low of US$4456.

Shortly after the US equity close, Donald Trump announced a further extension of the Iranian ultimatum deadline to April 6. The initial reaction was sharp, with S&P futures rallying from 6520 to 6597, crude falling around -4.2%, gold rebounding, and the USD softening.

However, those moves were quickly faded and reversed, with markets increasingly viewing these extensions as kicking the proverbial can, and while it has reduced the immediate tail risk, it has done little to alter the broader narrative.

While the delay removes some of the potential for extreme weekend gap risk, particularly around developments in the Strait of Hormuz, it does not materially shift the underlying setup.

The timing, however, may still influence positioning. By pushing the deadline out, it reduces the urgency for market players to aggressively de-risk into what would have been a weekend with considerable binary risk, although the broader pattern of late-week positioning adjustments remains firmly in place.

There is also a growing debate as to whether Trump is responding to levels in equity markets, using messaging tactically to support risk sentiment and keep financial conditions in check.

While difficult to verify, and subject to debate, it is a theme gaining traction across desks.

Stepping back, the key takeaway is markets are becoming increasingly frustrated by the lack of clarity and tangible progress in negotiations.

That should not be surprising, given the scale of what is at stake, and the reality that Iran is not negotiating with financial markets in mind.

However, as long as the Strait of Hormuz remains constrained and the primary trend in crude remains higher, cross-asset correlations are likely to stay tight, and the transmission into rates, FX, and equities will remain forceful.

This sets the tone for Asia, where a heavier open looks likely. From here, the focus shifts to how traders manage risk into the business end of the week.

Should we see a fifth consecutive week of de-risking into the Friday close, it will further reinforce the current playbook of respecting crude, fading strength in risk assets, and actively managing weekend gap risk

NAB Markets Today Research extract

Whether peace talks are taking place between the US and Iran remains debatable, Iran insisting that exchanges of letters via a friendly intermediary (presumed to be Pakistan) does not constitute talks.

Yesterday, in response to a 15-point peace plan proposed by the US, Iran has responded with its own 5-point plan to end the conflict. A Venn diagram of the two sets of proposals wouldn’t have any overlap.

On the ‘positive side’, Trump is not sounding adamant about the extended 5-day deadline he offered on Sunday night before he ‘obliterates’ Iranian energy infrastructure (“we’ll see”).

This is something that will realistically only be achieved by putting US ‘boots on the ground’ in Kharg Island, whose facilities are responsible for the distribution of 90% of Iran’s oil.

This will be the fear going into the weekend, given it would imply a major escalation of the conflict.

Incidentally, the FT was reporting last night that Iraq’s oil production is down to perhaps 250,000 bpd from nearer 3 million before the war started, due to the various attack on Iranian proxy strongholds in the country.

The amount of production currently being lost due to the war, either due to lack of storage facilities or otherwise might (I’m suggesting) now be in the order of -10 million bpd (or more).

Meanwhile, as our BNZ colleagues note, the US Maritime Administration has issued a new warning to ships about risks in the Bal El Mandeb Strait from the Houthis. 

The significance of this is that Saudi Arabia has been able to direct 4m barrels of oil per day via its East-West pipeline, facilitating increased shipping of oil via the Red Sea. If Houthis start firing at ships in this area, then that would cut off another vital source of oil supply to the world.

Data flow has seen latest consumer confidence survey readings from Germany, France and Italy all down but not by nearly as much as we have seen elsewhere so far from the likes of Australia and the UK.

US weekly jobless claims printed 210k, up from 205k, while continuing claims fell back to 1,819m from 1,851m, likely reflecting a further fall-off in people who were claiming but no longer able to due to the 26-week statute of limitations on eligibility.

In bond markets, 2-year treasury yields are up 10bps on the day, and 10s currently 7.5bps to 4.41%, but it is the belly of the curve faring worst where 5s are up 11.6bps.

The 7-year is up 10bps and where the just completed 7-year auction cleared 1bps above its pre-auction or when-issued yield.

In Europe, German benchmarks are up just over 11bps across the whole curve and in the UK, gilts by between 12bps and 14bps.

Aussie 10-year futures are 5.5bps up in implied yield terms on where they closed locally and 3s by 5bps.

ANZ Bank Australian Morning Focus, extract

Australia forecast update. The economic outlook has weakened, shaped by higher inflation from domestic pressures and the Middle East conflict and the resultant monetary tightening and activity impacts.

We forecast soft economic growth in 2026 of 1.3% y/y and stronger but still modest growth in 2027 of 1.8% y/y.

This reflects softer consumption and business investment, and similar public demand versus our previous forecasts.

We expect inflation to peak at 4.9% y/y in Q2 2026. From the second half of the year, we expect slower consumption, the higher AUD and falling oil prices to all contribute to slowing inflation.

We expect the trimmed mean to reach the RBA’s target in Q2 2027.

Commodities update:

Crude oil rallied after signs of negotiations gave way to rising tensions in the Middle East conflict. President Trump threatened Iran with intensified military action, with both sides seemingly miles apart in talks over a ceasefire.

Oil prices rose after Trump said that he doesn’t know if the US is willing to work with Iran on a deal.

This came not long after the US warned ships of a potential threat by Iran-backed Houthi militants in the key Bab El-Mandeb Strait. This is one of the few alternative paths for oil from Persian Gulf producers to the international market.

Saudi Arabia is currently exporting around 4mb/d from its Red Sea terminal at Yanbu by utilising the eastwest pipeline. Attempts to talk oil prices down through a mix of rhetoric and policy signals appear to be having limited impact.

Trump said he’s considering suspending a federal gasoline tax and expressed flexibility around a Friday deadline for Iran to negotiate a deal.

The latter point came into focus later in the day after Iran’s semiofficial Tasnim news agency reported that Iran responded to the US’ 15-point peace proposal through intermediaries.

Reuters reported a senior Iranian official labelled the US proposal as “one-sided and unfair”.

The prospect of an escalation in the Middle East conflict also pushed global gas prices higher. The hope of additional sources of supply are also fading.

Business leaders in the US are warning that the US lacks the infrastructure to alleviate a global shortage of LNG. Charles Reidl, chief of the Centre for Liquefied Natural Gas, said the US has the resources but not the infrastructure.

Concerns over supply shortages were exacerbated by reports that LNG production in Australia at two plants operated by Chevron had been reduced after a tropical cyclone.

Disruptions to Qatar’s LNG exports have already been reshaping LNG trade. Shipments to European ports have significantly dropped since February’s record high.

Ship tracking data shows the US is now sending more shipments to Asia, as buyers replace volumes typically sourced from the Persian Gulf.

Copper fell while aluminium gained as the Middle East conflict has different impacts across the metals complex. The prospect of an escalation in military action by the US weighed on sentiment in the copper market.

The metal has been under pressure amid concerns the higher energy costs will curtail economic activity and hurt demand. Aluminium bucked the trend to push higher on concerns supply disruptions are mounting. The Middle East supplies 9% of global aluminium and meets 18% of world ex-China demand.

The scale of disruption to shipments and production hinges on how long the Middle East conflict persists, with about 4–5mt of exports currently at risk. Global aluminium growth is constrained by China’s output cap of 45mt, while US import tariffs and Europe’s carbon tax are adding to the hurdles.

Unlike the energy crisis that followed Russia’s invasion of Ukraine in 2022, there is no alternative supply to cover the -4–5mt shortfall.

Following the imposition of sanctions on Russian metal, the Middle East became a crucial supplier to the European Union and countries including the US and Japan. Any further disruption to deliveries would add upward pressure on aluminium prices and premiums.

Gold dropped as much as -2.6% to trade near US$4,400/oz after Iran rejected a push for peace talks.

The precious metal has been trading contrary to its normal safe haven properties. Instead, concerns over higher inflation prompting central banks to increase rates have prompted investors to reduce their exposure.

Corporate news in Australia

-DCP Capital nears $450m acquisition of Vitaco, owner of Musashi and Nutra-Life

-Aware Super and TelstraSuper $237bn merger triggers redemptions, effective April 30

-Carbon Revolution enters administration as demand weakens, Geelong plant to keep operating

-Weebit Nano ((WBT)) prepares for $100m capital raise with terms and lead managers pending

-Vantage Point Asset Management targets $10bn from super funds to develop a Vietnam financial hub

-Sumitomo Mitsui Financial Group takeover speculation may slow Jefferies’ expansion in Australia

-David Jones seeks to refinance $150m debt amid financial pressure

-Sydney and Melbourne airports increasingly access offshore bond markets to secure funding amid volatility

On the calendar today:

-NZ ANZ consumer confidence

-CH Feb Indust Profits

-CH Q4 BoP

-UK Feb Retail sales

-US U.Mich sentiment

-VITA LIFE SCIENCES LIMITED ((VLS)) ex-div 9.50c (47%)

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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