Market Update: Insiders profit as Iran war pressure points build on global economy – Full Analysis

Winners are thin on the ground right now.

In a case of rather unfortunate timing, US President Donald Trump last week scheduled Easter Monday as the day he would “unleash hell” should Iran’s leaders reject his latest peace plan.

That was after his initial two-day deadline turned into a week-long affair before he extended it another 10 days, once again causing wild gyrations on global markets that led to some highly unusual but extremely profitable trading.

More on that later.

Trump is now openly canvassing a ground operation to relieve Iran of its enriched uranium and to take control of its oil which, unsurprisingly, hasn’t elicited any sign of capitulation from Tehran.

Despite all the president’s threats, more than one-fifth of the world’s oil and gas supplies remain trapped in the Persian Gulf as Iran maintains almost total control of the Strait of Hormuz.

Already, the impacts are ricocheting through the global economy.

Fuel supplies are running short, even in countries like America and Australia that are energy exporters.

Price rises are already beginning to filter through the broader economy, while the cost of money is increasing sharply.

Global stock markets, remarkably restrained for the past month as the crisis unfolded, have begun to wobble.

Wall Street is now down more than 10 per cent from its recent peak — officially considered a correction — with our own ASX200 sitting within a whisker of that milestone.

As the gravity of the situation begins to unfold, investor confidence is waning, with many looking for an exit.

Even that pillar of economic and investment growth in the past five years, technology and artificial intelligence, is facing a potentially damaging disruption from the conflict, threatening to undermine the lofty valuations that have underpinned investment markets for the past three years.

Black swan for the AI boom?

Some call it a black swan event — a life-altering wave of chaos completely out of left field.

Except, after the two oil crises of the 1970s, energy industry analysts and diplomats worldwide have spent decades war-gaming the potential impact of a Middle East meltdown.

The only unexpected element to the current conflagration is that America has led the charge.

For decades, ever since Iran captured US embassy staff and held them hostage for more than a year, various administrations have debated an Iran attack.

While there were some naval skirmishes in the Persian Gulf in the 1980s, the idea of a full-scale war was repeatedly rejected because of the potential hit to the global economy from an oil blockade.

Until now.

Those with long memories were always quick to remind senior officials that it was a CIA-orchestrated coup in Tehran that unseated an elected leader and installed the shah, helping create hostilities.

But the war itself could now spawn further black swan events, particularly in the world of technology, AI and on global capital markets.

Fuel and fertiliser shortages have dominated coverage of the Persian Gulf closure. But in the world of chip manufacturing, helium and sulphur are key ingredients — much of which is also sourced from the Gulf.

Helium is produced from LNG and, due to the extensive damage to Qatar’s massive facility, is likely to be in short supply for who knows how long.

Spot sulphur prices, meanwhile, have been soaring.

Long before the chemical shortages, which ultimately will push up AI development costs, there were serious concerns about whether the huge amount of cash already invested in AI would deliver the kinds of returns that justify the outlay.

Added to those concerns is the expected hike in the cost of energy globally.

Data centres are springing up like mushrooms across the developed world. Australia already has about 250 which, according to the Climate Energy Council, already consume about 2 per cent of grid power.

But planned new data centres are much bigger, with one in Sydney expected to consume as much as a small city, using the equivalent of almost half the power from Victoria’s Loy Yang A coal power plant if just two of them run at full capacity.

Data centre power consumption is expected to rise to 6 per cent of the grid by 2030 and 11 per cent by 2035, growth targets that may well be hindered by a sudden one-off surge in power generation.

Any cut to the ambitious growth forecasts is unlikely to play out well on stock markets that have concentrated on one sector for so long.

We want more, money market tells Trump

Cracks are already beginning to emerge in America’s monetary position as it burns through its diplomatic credibility and depletes its firepower with the constant bombardment of Iran.

Debt now sits at an uncomfortable $US39 trillion and, at the most recent auction last week, there was noticeably weaker demand for US government bonds.

That has been reflected on money markets. Weaker demand for government IOUs means that interest rates must rise to make them more attractive to buyers.

The yield, or interest rate, on US 10-year bonds has soared in the past month by more than a double rate hike. Investors are now fetching more than 4.4 per cent.

That’s a marker for where investors see inflation and interest rates heading.

It also makes life harder for Trump.

For the past year, he has demanded the US Federal Reserve cut interest rates, a demand that if met now would cause chaos within the global monetary system.

Those higher rates will increase the soaring cost of servicing America’s already huge debt and will need to be paid for by, you guessed it, issuing even more debt.

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On this side of the Pacific, the trend has been even more painful. Australian 10-year government bonds are now sitting well above 5 per cent as global growth prospects dim.

Just yesterday, Westpac chief economist and former Reserve Bank assistant governor Luci Ellis predicted three more rate hikes, an inflation rate of 5.4 per cent and unemployment rising to 5 per cent.

Ouch.

In the know? Or just a psychic?

It took barely a minute to complete.

Last week, at 6:49am Monday, New York time, a huge volume of oil futures contracts was pushed through the market.

By 6:50am, about $US580 million worth of contracts covering Brent crude, the global benchmark, and West Texas intermediate changed hands, sending prices into free fall, dropping from just under $US100 a barrel to $US89.

Minutes later, Donald Trump announced, via his own social network platform Truth Social: “VERY GOOD AND PRODUCTIVE CONVERSATIONS” with Tehran over a “COMPLETE AND TOTAL RESOLUTION” to hostilities.

Hours later, Tehran refuted the claims and oil prices began climbing, sparking calls for an investigation into the trading.

“This appears abnormal, for sure,” XAnalysts chief oil analyst Mukesh Sahdev told the BBC.

“At that time, there were no indications that any serious talks had been taking place between the US and Iran.

With the president continually lurching from one extreme position to another, financial and commodity markets have been extraordinarily volatile for much of the past year, ever since his Liberation Day tariffs announcement sent Wall Street plunging almost 10 per cent.

But a new crypto-based avenue has also opened the door to high-stakes gambling on presidential decisions, Polymarket.

A new study by Columbia Law School and the University of Haifa has examined the blockchain ledger in search of odd trading patterns and discovered transactions generating profits of about $US143 million.

“The idea that someone would trade on national security information or information about upcoming terrorist activity — people thought that’s not even possible,” Joshua Mitts, a law professor at Columbia and one of the co-authors told Bloomberg.

“Today what we’re seeing in these prediction markets is that actually it is quite possible.”

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