Iran conflict keeps driving markets
Markets continue to trade on headlines tied to the US-Iran conflict, with oil prices reacting quickly to developments around the Strait of Hormuz and peace talks.
Speaking on Thursday’s CommBank View: Economics & Markets podcast episode, CommBank Economist and Currency Strategist Carol Kong said that was evident earlier in the week, when oil prices initially jumped on concerns Iran could again close the key shipping route.
“We saw oil prices initially jump on the back of news that Iran could potentially close the Strait of Hormuz again, and President Trump threatened military action against Iran,” she said. “However, we saw oil prices quickly reverse course after peace talks in Switzerland proceeded as expected.”
Kong said there were signs of progress, but cautioned the situation remained fragile.
“It is positive that the two warring sides continue to talk, but the weekend events do suggest that the ceasefire is still at risk of collapsing.”
Despite the volatility in oil, she said financial markets had become less sensitive to price swings than earlier in the conflict.
Australian jobs data in focus
On Thursday, attention turned to the latest labour force report.
Australia's unemployment rate fell to 4.4% in May as employment rebounded by 40,300 jobs, although Commonwealth Bank economists say the broader trend points to a gradual easing in labour market conditions.
"The labour market remains a little tight but is slowly loosening broadly in line with our expectations," CBA Economist Harry Ottley said. While the monthly unemployment rate dipped from 4.5%, the trend measure edged up to 4.4%, reflecting a gradual softening in labour market conditions.
US inflation to guide markets
Attention shifted to US inflation figures later on Thursday, with the Personal Consumption Expenditures Price Index, the Fed's preferred inflation gauge, rising at a seasonally adjusted 4.1% annual rate in May.
Kong said the release was always closely watched by markets and had taken on greater importance because of new Fed Chair Kevin Warsh's strong commitment to price stability.
