Share markets plummeted and oil prices surged on Thursday after Donald Trump’s speech dashed investors’ hopes of a quick resolution to the war with Iran, with the President calling on other nations to help reopen the Strait of Hormuz as the closure of the key oil passageway continues to wreak havoc on the global economy.
Mr Trump gave a televised address on Wednesday night, US time, telling Americans his objectives in the war were “nearing completion” and he expected it to end “very shortly”, within two or three weeks.
However he reiterated his threat to destroy Iran’s energy infrastructure, hitting “each and every” electricity plant “very hard, and probably simultaneously”, if the regime refuses to make a deal with him in the meantime.
S&P 500 futures fell 0.8 per cent, Nasdaq futures lost 1 per cent and Dow Jones futures 0.8 per cent following the late-night national address, while the Australian share market shed 0.5 per cent by 1pm.
Brent crude jumped more than 4 per cent to as high as $US105.55 a barrel, while West Texas Intermediate climbed 3 per cent to hit $US103.16. Both contracts had been falling before the President started his speech.
Share markets had also rallied strongly in recent days on expectations the US-Israeli-led conflict could end within weeks.
“Markets were beginning to price in more certainty … but this speech reintroduces more ambiguity,” deVere Group chief executive Nigel Green said in a statement.
“Markets had been pricing a shorter, contained conflict. What they’ve heard now is far less definitive, and that uncertainty is likely to drive volatility across asset classes.”
Mr Trump “spoke of objectives met, but not of resolution. Of continued strikes, not withdrawal. Of optional escalation, not closure”, wrote Stephen Innes at SPI Asset Management.
“The message was not one of panic, but it was unmistakably one of unfinished business. And in markets, unfinished business is oxygen for volatility,” Mr Innes said.
“So oil did what oil always does when the illusion cracks. It surged, not because the war suddenly worsened, but because the market had prematurely priced in the expectation that it would end.”
Share markets in Seoul — which soared more than 8 per cent Wednesday — lost 3 per cent. Tokyo, Hong Kong, Shanghai, Singapore and Taipei were also well down.
The speech “did not contain what the market had hoped for — namely, indications of an end to the fighting”, Jumpei Tanaka, of Pictet Asset Management, said.
“Instead, he suggested a potential escalation of the situation, which is a clear negative for stocks.”
In his speech, Mr Trump reiterated his disinterest in reopening the Strait of Hormuz, saying it was “not part of what I wanted to do” and once again calling on allies to pick up the slack and “get your own oil”.
“Let them do it,” Mr Trump said.
“Let France do it. They get a lot of oil from the Strait. Let the European countries do it. Let South Korea, who is not helpful to us by the way, let South Korea — you know, we only have 45,000 soldiers in harm’s way over there, right next to a nuclear force. Let South Korea do it. Let Japan do it. Let China do it. Let them all do it. What the hell are we doing it for? All I want to do is make sure they never have a nuclear weapon.”
On Wednesday morning, Mr Trump had claimed in a Truth Social post that Iran’s “New Regime President” had asked for a ceasefire, but that the US would only “consider” the offer once the Strait of Hormuz was “open, free, and clear”.
Tehran later denied that it had requested a ceasefire.
“We don’t know how long this is going to last, but as market participants we need to understand the damage that has already been done,” Sebastien Page, head of global multi-asset and CIO at T. Rowe Price, told CNBC on Wednesday afternoon prior to Mr Trump’s speech.
“I don’t think we stabilise quickly back to normal levels of inflation. It’s a slow-moving macroeconomic chain. You have this background of still a robust economy, but you have to worry you’re on the knife’s edge for a growth shock.”
Meanwhile, the World Bank Managing Director Paschal Donohoe said he was fearful about the global economic impact of the crisis.
“We are extremely concerned regarding the effect that this will have on inflation, on jobs and on food security,” he told AFP as the Bank announced a new partnership with the International Monetary Fund and International Energy Agency to coordinate aid responses.
Mr Green said investors had been positioning for a “clean, short-duration conflict”.
“Now, the picture is more complex,” he said. “There’s still no confirmation of how or when this ends, and that changes how markets will price risk.”
Mr Green said Mr Trump’s latest comments raised the possibility that key “key risks, particularly around the Strait of Hormuz, may not be fully resolved”.
“The oil market is highly sensitive to this,” he said.
“If traders believe supply risks remain, the geopolitical risk premium will return quickly. This has direct implications for inflation expectations and broader market sentiment. Gold and the dollar typically strengthen when uncertainty rises, and we would expect to see renewed support for both if markets begin to question the stability of the current outlook.”
More broadly, Mr Green added, the speech highlighted the broader issue of the lack of a clearly defined end state, if the US pulled out of the conflict without a full resolution including the reopening of shipping routes.
“A conflict that is declared ‘complete’ but leaves strategic risks in place is not the same as a full resolution,” he said.
“Markets will need to adjust to that distinction. Financial markets move quickly when the narrative changes. Right now, the narrative has become less clear, and that increases the likelihood of sharper moves in both directions.”
Mr Green said the key issue was uncertainty.
“Until there is a clearer understanding of how this conflict ends and what risks remain, markets will remain sensitive to every development,” he said. “This means higher volatility, particularly across equities, oil and currencies, as investors adjust to a more complex and less predictable outlook.”
— with AFP
