New Zealand 10-year bond yields are at 4.51% from 4.35% at the start of the week, while the local sharemarket has lost just under 2% since the conflict began.
Oil prices have remained under upward pressure, with West Texas Intermediate trading above US$80 a barrel for the first time in over a year, and Brent crude trading above US$85 a barrel.
Saudi Arabia is diverting oil to its Red Sea ports via a pipeline, but other producers in the area are reliant on access through the Strait of Hormuz.
Harbour Asset Management portfolio manager Shane Solly said the markets’ reaction so far had been a mixture of “risk off” and the unwinding of “crowded” trades – people taking profits.
“There’s plenty of crude out there globally, it’s just that there are now logistics issues with the Strait of Hormuz virtually closed.”
Qatar has stopped making liquefied natural gas after neighbouring Iran attacked its facilities.
“And there are specific issues with LNG, which places like Japan and North Korea depend on,” he said.
“The US market has been anticipating potential for risk, but we have seen some big pullbacks in the Japan and Korean sharemarkets,” Solly said.
“Both economies are big energy importers, but both markets [Japan and South Korea] had been big outperformers going into this,” he said.
“The debate in the capital markets is about whether this will be a short, swift campaign to bring Iran to the negotiating table and land a nuclear deal, or a regime change,” he said.
Central bankers around the world will have their work cut out in terms of how to handle the likely inflationary impact of the conflict.
Before the attack, markets had expected the US Federal Reserve to cut rates once or twice this year.
“Now with this higher inflation, it’ll be sitting on the sidelines,” Imre Speizer, head of strategy at Westpac New Zealand, said.
Market moves so far had been relatively orderly.
“So far, I’d call it relatively orderly – relative to the war. It’s not complete panic stations yet, but it’s early days.
“A lot of pundits, commentators and economists offshore are talking about oil north of hundreds of dollars per barrel, so there is potential for prices to go a lot higher still if this thing intensifies,” Speizer said.
The Financial Times reported the war had caused aluminium smelter closures and “force majeure” declarations across the industry in the Middle East, threatening a supply crunch in the metal with global stocks already close to historic lows.
On the London Metal Exchange, aluminium traded at US$3322 a tonne – its highest level since 2022.
Jamie Gray is an Auckland-based journalist, covering the financial markets, the primary sector and energy. He joined the Herald in 2011.
- Stay ahead with the latest market moves, corporate updates, and economic insights by subscribing to our Business newsletter – your essential weekly round-up of all the business news you need.
