Markets sold off over the week as investor complacency gave way to genuine concern around a potential escalation in the war in Iran, with both sides targeting energy infrastructure and driving sharp spikes in oil prices.
The S&P 500 fell 1.9% last week as bond yields surged in response to rising energy prices. Expectations for interest rate cuts have been largely priced out, with futures now implying a 40% chance that the Federal Reserve could instead hike rates by October. Against this backdrop, rate-sensitive sectors such as technology and real estate sold off sharply. Semiconductor firms provided some respite, however, after Nvidia CEO Jensen Huang projected that the company’s new AI processors could generate US$1 trillion in sales through 2027.
Australian equities also sold off on rising interest rate risks after the RBA delivered its second consecutive rate hike, citing stronger-than-expected growth and ongoing inflation concerns. The S&P/ASX 200 fell 2.2%, driven largely by declines in the materials and technology sectors. Materials were once again weighed down by concerns around slowing growth, with the move further exacerbated by a surprising pullback in gold prices.
Short equity funds (BEAR, BBOZ, BBUS, SNAS) were the top performers of the week as equity indices sold off. Korean equities (IKO) also had a surprisingly strong showing after investors rode the bounce from its steep selloff two weeks ago.
In the world of commodities:
- Gold (GOLD) prices fell below US$4500 for the first time since January as higher interest rate expectations pressured the non-yielding asset. Investors may also be selling the winners of last year to fund falling equity allocations.
- Crude oil (BCOM) surged back above US$100 per barrel as US and Iran ramped up escalatory remarks with both sides threatening to target non-military assets over the weekend.
- Grain commodities (BCOM) may outperform as rising crude oil prices put pressure on the fertiliser supply chain, potentially reducing output across many of the world’s most widely consumed foodstuffs.
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