Investors on edge as Trump’s decision looms in Middle East crisis

Investors lost confidence on Friday as fears that the US would join Israel’s conflict with Iran began to bite.

By the close of trade, the ASX 200 had fallen by 18.2 points, or 0.2%, to 8505.5 points.

That marked the fourth day in a row the market had fallen, with a weekly fall of 0.5% taking the index to its lowest point since the beginning of June.

Trump set to make big decision

With US President Donald Trump saying he will make a decision within two weeks on whether to join the conflict and no direction from Wall Street due to a public holiday, investors had to weigh up what effects any disruption to oil supplies would have when added to the continuing US threat of tariffs.

Australia’s most valuable company Commonwealth Bank (ASX: CBA) led the market lower, shedding 0.2% to $182.53.

The fall was echoed by the other big banks, with shares in National Australia Bank (ASX: NAB) down 0.5% to $38.91, Westpac (ASX: WBC) shares losing 1.1% to $33.21, and ANZ (ASX: ANZ) falling 2.5% to $28.39.

Some defensive rises offset the losses

The weakness wasn’t universal, with six of the 11 ASX sectors falling, but some defensive shares gaining support due to global uncertainty.

A good example of this trend was in healthcare, with shares in Pro Medicus (ASX: PME) and ResMed (ASX: RMD) rising by more than 1%, and Cochlear (ASX: COH) shares adding an impressive 2.5% to $295.64.

Utilities and information technology companies were broadly firmer but weaker Chinese steel making led to a mixed performance by the big iron ore miners, with shares in BHP (ASX: BHP) up 0.2% to $36.21 while Rio Tinto shares (ASX: RIO) shed 1.3% to $102.27 and Fortescue shares (ASX: FMG) also fell 0.5% to $14.69.

There was plenty of volatility in the lithium sector after a Citi broking report that predicted further weakness in lithium prices.

Liontown Resources (ASX: LTR) shares initially fell but then rose to close up 0.8% to 65¢ although shareholders in Pilbara Minerals (ASX: PLS) saw their investment shed 5% to $1.23 while shares in Mineral Resources (ASX: MIN) dropped 6.2% to $20.69.

There were some interesting corporate manoeuvres with Betr (ASX: BBT) shares jumping 5.3% to 30¢ after it lobbed a cheeky all-scrip bid for betting rival PointsBet (ASX: PBH) in an attempt to prevent a sale of the company to Japanese giant Mixi.

PointsBet shares remain in a trading halt after the Mixi bid was announced but an acquisition would obviously help Betr compared to the prospect of competing with an offshore rival with deep pockets.

And in some alarming news for shareholders, shares in Bowen Coking Coal (BCB) fell an extraordinary 48.6% to 18¢ after it announced that depressed coal markets and what it described as an “unsustainable” Queensland coal royalty regime could result in it temporarily pausing operations at some or all of its flagship Burton Mine Complex near Moranbah.

The week ahead

A fairly pivotal week awaits, with any developments in the conflict between Israel and Iran obviously set to be the major factor, particularly if the US decides to join the war.

Otherwise, the big news both here in Australia and in the US is how inflation is travelling.

Our consumer price index is released on Wednesday, with economists expecting a slight drop from April’s annualised 2.4% to 2.3% in May.

If that turns out to be the case, it will give the Reserve Bank more room to cut official interest rates, given inflation would be near the bottom of the target set by the RBA.

Following on from the US Fed’s decision to hold rates steady, the release of its preferred personal consumption expenditures index (PCE) on Friday is expected to rise from 2.5% to 2.6%, moving further away from its target of 2%, and perhaps justifying its caution in not cutting interest rates, as tariffs threaten to further boost inflation.