Softer-than-expected US inflation lifted Wall Street and reduced the immediate risk of another interest rate increase. Oil prices climbed again after Washington reinstated its naval blockade on Iranian ports
The Australian share market is expected to open higher, following gains on Wall Street despite the renewed military escalation between the United States and Iran.
ASX 200 futures were pointing to a rise of about 0.5 per cent, taking the index towards 8,814 points after the previous session ended broadly unchanged.
Investors are balancing two opposing forces: encouraging US inflation data and a further increase in oil prices following the return of the American naval blockade against Iran.
Wall Street lifted by inflation figures
The US Consumer Price Index rose by 3.5 per cent in the year to June, below market expectations of 3.8 per cent.
The result strengthened expectations that the Federal Reserve will leave interest rates unchanged at its July policy meeting.
Financial markets are now pricing in an 83 per cent chance that rates will remain on hold, compared with 58.3 per cent earlier in the week.
Wall Street responded positively. The S&P 500 gained 0.4 per cent and the Nasdaq Composite rose 0.9 per cent, while the Dow Jones Industrial Average finished largely flat.
Oil climbs above $US85 a barrel
Pressure remains intense across global energy markets.
Brent crude futures rose by about 2.8 per cent to $US85.62 a barrel, while West Texas Intermediate gained 2.4 per cent to just above $US80.
The increases followed the reinstatement of the US naval blockade against Iranian ports and coastal areas.
American forces have continued striking Iranian targets, while Tehran has again claimed control over traffic through the Strait of Hormuz.
Trump abandons proposed 20 per cent toll
US President Donald Trump has withdrawn his plan to impose a 20 per cent charge on cargo passing through the Strait of Hormuz under American military protection.
Trump said Gulf nations had instead offered major trade and investment deals with the United States.
The decision removed one potential source of disruption for international shipping, but it did not affect the blockade on vessels travelling to or from Iranian ports or carrying Iranian cargo.
Naval blockade increases uncertainty
The renewed restrictions could further reduce commercial traffic through the region.
Ships suspected of violating the blockade may be stopped, inspected or seized by US forces.
The risk of a confrontation between American and Iranian military units continues to support oil prices and increase insurance costs for shipping companies.
The main concern for markets is that a prolonged conflict could reduce energy supplies and trigger another wave of global inflation.
Australian dollar strengthens
The Australian dollar rose by about 0.8 per cent to 69.7 US cents.
The currency benefited from weakness in the US dollar following the lower inflation result and reduced expectations of an immediate Federal Reserve rate increase.
Gold also gained 1.3 per cent, reaching about $US4,050 an ounce as investors sought protection from geopolitical uncertainty.
Bitcoin higher, iron ore steady
Bitcoin rose by 3.7 per cent to approximately $US64,449.
Iron ore, a key commodity for major ASX-listed mining companies, was almost unchanged. It slipped by 0.1 per cent to about $US99.30 a tonne.
The stable iron ore price may limit movements among Australia’s largest miners, while energy producers could benefit from the rise in crude oil.
Energy stocks may benefit
Higher oil prices are likely to support Australian companies involved in oil and gas production.
Airlines, freight operators and other fuel-dependent businesses may face renewed pressure from higher operating costs.
If crude prices remain above $US80 a barrel, Australian motorists could also face more expensive petrol, adding to pressure on the federal government over whether to extend its temporary fuel excise relief.
Geopolitics to dominate trading
The ASX is expected to begin the session in positive territory, supported by the stronger performance of US markets.
However, the direction of trading will remain closely linked to developments in the Strait of Hormuz and further movements in oil prices.
Lower US inflation has provided some relief for investors, but the conflict with Iran threatens to revive the price pressures central banks have been trying to control.
