ASX adds $94 billion as Trump’s potential Middle East peace plan cause bitcoin and gold to surge
Risk assets rocketed on Wednesday as traders cheered in relief at a potential deal to reopen the Strait of Hormuz.
Shares added $94 billion on Wednesday as the S&P/ASX 200 jumped 2.5 per cent after US President Donald Trump agreed to suspend bombing on Iran for two weeks, subject to its rulers agreeing to open the Strait of Hormuz.
The news sparked a wild rally in risk assets as technology and mining stocks rocketed on bets a peace deal will ease pressure on central banks to lift interest rates to offset rising energy prices.
Risk bellwether Bitcoin jumped 4.5 per cent to $US71,500. While gold leapt 2.5 per cent to top $US4800 an ounce for the first time since March 19.
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“The market is unwinding a war premium. The first-order effect is lower oil prices, reduced inflation fears, and a decline in the probability of an energy-driven growth scare. That combination is driving the equity rally,” said Stephen Dover the Chief Market Strategist at Franklin Templeton.
“Lower energy costs ease pressure on consumers and business margins, particularly benefiting transportation, airlines, industrials and rate-sensitive growth stocks. The shift would improve both the earnings outlook and the inflation backdrop.”
On the ASX, national airline Qantas climbed 9.4 per cent to $9.28, with Virgin Australia firming 13.5 per cent.
Tech sector rockets, energy, diesel plunge
The S&P/ASX Technology Sector jumped 6.5 per cent in the afternoon as software companies clawed back a small part of heavy losses over a horror six-months.
WiseTech Global jumped 10.2 per cent to $43.21 and Technology One climbed 6.5 per cent to $29.37. While payments player Zip Co was the best performer on the flagship index in zooming 17 per cent higher to $1.96.
“We think there will be further rotation out of defensive and back into cyclical areas over the coming days and weeks as the tail risk scenarios are removed,” said Jason Todd the Chief Investment Officer of Ten Cap Funds Management.
“We don’t see why the market cannot take out its prior highs with positive earnings impacts. Prior to the start of the conflict, the outlook for the market was solid despite rising policy rates.”
The big miners also advanced as investors speculated a peace deal will help global economic growth. BHP rose 3.7 per cent to $54.88 and Rio Tinto added 4.5 per cent to $171.71. Copper added 2.1 per cent to $US5.71 a pound and silver surged 6 per cent to $US76.40 an ounce.
The only loser was Australia’s S&P/ASX Energy sector. It lost 7.4 per cent during the day as oil and gas giant Woodside Ltd plunged 10.2 per cent to $32.22, with Santos down 5.5 per cent to $7.65. Benchmark Brent Crude futures lost 10 per cent to $US94.74 a barrel.
Elsewhere, benchmark futures price for London Gas Oil, as a proxy for global diesel, also tumbled 17.5 per cent to $US1210 a metric tonne.
Wall Street cheers
The stunning rally in risk assets was initially triggered by a Truth Social post from President Trump, around an hour before the ASX market open.
“We received a 10-point proposal from Iran, and believe it is a workable basis on which to negotiate,” Mr Trump posted.
“Almost all of the various points of past contention have been agreed to between the United States and Iran, but a two week period will allow the Agreement to be finalised and consummated.”
Later news reports signalled Iran conditionally agreed to the 10-point deal that includes the reopening of the Strait of Hormuz on a conditional basis after it was negotiated by Pakistan’s Prime Minister Shehbaz Sharif and Field Marshal Asim Munir.
Wall Street futures point to gains of as much as 720 points or 3 per cent at the opening bell for the tech-heavy Nasdaq Index.
Other strategists and investors warned the tentative ceasefire is at risk of breaking, as news reports suggested Iran continued to fire missiles at Israel on Wednesday morning.
“Can a deal be reached? Time will tell,” said Betashares Chief Economist David Bassanese.
“As regards the Strait of Hormuz at least, it seems the grounds for a deal are evident, Iran likely does not want to block the Strait any longer than it needs to and has only done so as a means of politically pressuring Trump, through higher oil prices, to cease attacks.”
