NEWS + VIEWS – 20/06/2025
MARKETS
Trump tariffs have taken a back seat to the Israel/Iran conflict. After some downward movement in share markets following Israel’s threat and then an attack on Iran’s nuclear capabilities, investors are betting that the conflict will be contained.
The biggest fallout however would probably occur if Iran blocked the Straits of Hormuz, through which 30% of seaborne oil trade flows. The block could result in major damage to some economies as the oil price would likely ‘spike’. Depending on the severity of the blockage, analysts predict oil to hit $US120 to $US140 per barrel from the current mid $US70.
Trump leaving the G7 summit early was intended to send a message that the US is considering using their ‘bunker busting’ bomb to knock out Iran’s Fordo nuclear facility. Whether that is enough for Iran to agree to shutting down that nuclear facility, only time will tell. Markets are currently betting that Iran will agree to talks (and actions).
From an investment perspective, a tick up in the oil price has already benefitted energy company share prices (at least in the short term). Finding other sectors that might benefit is more difficult in a high priced oil environment.
TARRIF IMPACTS YET TO SHOW UP
US tariffs are yet to have a significant impact on the US economy. Economists expect that the effect of tariffs will reduce GDP and increase inflation. The chart below shows that real GDP growth is low, but positive, and inflation is still elevated but perhaps ‘coming off’. So, there is no definitive trend there as yet, although manufacturing indices are starting to show orders falling and prices rising, which is an inflation indicator.
Source: Philadelphia Fed, Refinitiv, Canaccord Genuity
On the domestic front, inflation has slowed and looks like it may remain in the Reserve Bank’s (RBA) target zone. However, real GDP growth is flat and investment has been falling.
Source: ABS, Canaccord Genuity
* CPI trimmed mean inflation
YIELDS ON INTEREST BEARING ASSETS LIKELY TO FALL
Interest bearing yields are likely to remain lower and may fall further. In the likely event that the RBA continues to cut rates, yields on cash, term deposits, hybrids and subordinated notes with interest rates tied (or partially tied) will continue to fall.
The silver lining is that lower interest rates typically give a lift to company profits as the cost of investment and borrowing fall. Pushing against this, however, are the rising Federal and State Government policies and regulations discouraging investment (new taxes, industrial relations, energy), and reduced productivity.
We are entering a typically weaker part of the year for share markets. US markets have recovered since the tariff announcements were made but still don’t seem to be overpriced. Some names in the Technology sector are priced for perfection. Australian markets look more challenged in the short term and are trading above or at the high end of past Price/Earnings ranges. The banks, particularly the Commonwealth Bank (CBA), have been ‘on a tear’ as foreign institutional investors have diversified their preferred Asian exposure. The miners appear to represent better value, particularly if China starts stimulating its economy.
Gerard O’Shaughnessy
P 0423 771 330
Important Disclaimer
The directors, employees and authorized representatives of PPN Wealth do not guarantee the information in this report to be complete, up to date, accurate nor applicable to your personal circumstances. This is general investment advice only. You should not act on recommendations in this report without discussing proposed actions with your PPN Wealth adviser to ensure recommendations are suitable to your circumstances.
The principals, associates and employees of PPN Wealth may have investments in the securities or companies, referred to in this report.
This report may not be distributed in any way without the prior permission PPN Wealth. The directors, employees and authorized representatives of PPN Wealth do not accept any liability for third parties’ actions relating to this report.
