Could Markets Sustain the Conflict Shock?

Why It Matters

A prolonged closure of the Strait of Hormuz would tighten global oil supplies, driving up energy costs and forcing investors to reallocate into safe‑haven assets, reshaping risk appetite across equities and fixed income.

Key Takeaways

• Iran-Israel strikes threaten Strait of Hormuz oil flow
• Energy prices spiked, but futures remain unsettled for oil
• Safe‑haven assets rallied as investors seek protection in turbulent times
• Equity markets slipped amid volatility and earnings uncertainty
• Analysts warn prolonged conflict could trigger lasting market shock

Summary

The video examines the market fallout from the latest flare‑up between Israel and Iran, focusing on the strategic Strait of Hormuz and its role in global oil logistics. Host Andrew Gageen outlines how Iranian missile strikes and Israeli air raids have raised alarms about a potential choke‑point that handles roughly one‑fifth of world oil shipments, prompting immediate price spikes and heightened insurance premiums for tankers. Key data points include a 10% jump in Brent crude to about $80 a barrel, a 2% rise in gold to $5,275 per ounce, and a modest rally in U.S. Treasury yields despite a stronger-than‑expected core PPI. Safe‑haven currencies such as the Swiss franc appreciated, while risk‑on assets like the Australian dollar and tech equities fell, reflecting investors’ shift toward protection amid supply‑side uncertainty. Analyst Matthew Goodson from Salt Funds warned that “you tend to often see a sharp initial move and then it corrects itself as the situation unfolds,” emphasizing that a sustained market decline would require the Strait to be closed or severely constrained for weeks. He also noted that over‑the‑counter oil trades have already added $10 per barrel, but futures remain muted pending clearer signals from the conflict. The broader implication is that markets may experience heightened volatility but are unlikely to plunge unless the maritime bottleneck becomes a prolonged blockade. Investors should monitor oil‑related futures, safe‑haven assets, and any diplomatic developments that could either reopen the strait or deepen the geopolitical rift.

Original Description

Matthew Goodson of Salt Funds highlights the current volatility in equity markets, noting that much of the movement remains on light trading volume. Goodson points out there are no major ASX listed companies with significant direct exposure to oil or gold, making the market reaction to geopolitical risks, particularly in the Middle East, harder to gauge until futures markets provide clearer direction. He identifies energy commodities as a primary focus, especially with potential disruptions in the Strait of Hormuz where around 20% of global oil supply transits, though at this stage, any significant market impact would require more sustained escalation.

Goodson sees precious metals, especially gold, positioned for gains as investors embrace a flight to safety amid uncertainty. This is reinforced by US bond yields rallying despite higher-than-expected core CPI, signifying heightened risk aversion. He also observes that the reaction to earnings results during Australia's reporting season was far more volatile than usual, with minor beats and misses triggering exaggerated share price movements. He attributes this to a greater presence of passive and momentum-driven investors, resulting in more dramatic short-term swings.

Turning to New Zealand, Goodson notes a quieter reporting season with cautious optimism in earnings. While house prices have dropped 10–20% from peak, making real affordability slightly better, general unaffordability persists. Slightly dovish signals from the Reserve Bank have led to lower swap rates and some fixed mortgage rate decreases, but Goodson expects meaningful recovery in residential housing will take longer to play out.