Global markets are reacting to the escalating conflict in the Middle East, with oil and aluminium prices surging amid supply concerns. Brent crude jumped more than 3 per cent to above $US116 per barrel, marking a 60 per cent increase this month, after Houthi militants attacked Israel. Aluminium prices also soared, climbing 6 per cent after reported attacks on production sites in Bahrain and the United Arab Emirates, raising fears of supply shortages.
The conflict has effectively closed the Strait of Hormuz, a critical waterway for about 20 per cent of the world’s energy supply. This has sparked fears of stagflation, a damaging economic condition characterised by spiking inflation and slowing growth. Mining stocks with exposure to aluminium, such as Alcoa, saw gains, bucking an otherwise negative trend in the sharemarket.
Tech-heavy Korean and Japanese sharemarkets experienced significant declines, while US futures indicated further selling. According to Jonathan Pain, former executive of Rothschild Australia, markets are pricing in a sharp stagflationary shock to the global economic system. Robert Rennie, head of commodities strategy at Westpac, suggested Brent prices could surpass $US120 a barrel this week.
Gold prices, typically a safe haven, fell by 2 per cent, continuing a 15 per cent decline this month. A stronger US dollar, driven by reduced expectations of US Federal Reserve rate cuts, has diminished gold’s appeal. Commodity analysts note that only specific safe haven demands, like those triggered by US trade policy, are currently driving gold and other precious metals.
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