Renewed Iran strikes rattle markets, rand holds near R16

Global and local markets spent the past 48 hours reassessing risk after the United States and Iran resumed direct military strikes on Tuesday, reigniting a conflict that has simmered since February and sending oil sharply higher.

Global markets

US Central Command confirmed fresh strikes on Iranian Revolutionary Guard Corps targets on Tuesday, with Iran responding by targeting US assets and allies in Jordan, Kuwait, Bahrain, Iraq and the UAE. The renewed hostilities ended weeks of relative calm around the Strait of Hormuz and pushed Brent crude up roughly 4.6% to top $95 a barrel – a six-week high – while US West Texas Intermediate settled near $91.

Wall Street sold off on the back of it. The S&P 500 fell 0.7% to 7,631.47, the Dow shed 419 points (0.8%) to 52,766.88, and the Nasdaq – dragged lower by big tech – dropped 1% to 26,099.77.

The sell-off tracked a now-familiar chain reaction: higher oil raises inflation risk, which raises rate-hike expectations, which pushes bond yields higher and pressures equity valuations. The 10-year Treasury yield climbed to 4.79% in the process.

Those rate-hike bets have been building since Fed chair Kevin Warsh's hawkish Jackson Hole remarks, with markets now pricing in roughly a 66% chance of a September hike, up from about 40% a week earlier.

That's despite a soft ADP report showing US private employers added just 38,000 jobs in August – the weakest reading since January – pointing to a cooling labour market even as war-driven energy costs threaten to keep inflation elevated.

Gold has been caught in the crossfire of that tension. Spot bullion eased to around $4,330–$4,375 an ounce, its lowest level in roughly three weeks, as rate-hike expectations outweighed the usual safe-haven bid from the Middle East escalation – though the metal still closed out its strongest month since January in August, up 9.6%.

Local markets

The rand traded around R16.14 to the dollar on Wednesday, pressured by a firmer greenback and the flare-up in the Middle East, with the JSE All Share Index at roughly 114,890 points. South African motorists face sharp petrol and diesel price hikes from 2 September as the renewed conflict keeps international oil prices elevated.

The domestic inflation picture had been improving heading into this week, with July's reading easing to 4.3% from 5% in June – undershooting forecasts – helped in part by softer fuel costs during an earlier, since-collapsed US-Iran truce. The Reserve Bank held its repo rate at 7% in July, and the renewed conflict has turned September's decision into a genuine toss-up between a hold and a hike.

Locally listed gold and platinum miners – names like Harmony Gold, Sibanye-Stillwater, Gold Fields and Impala Platinum – have been among the biggest swing factors on the JSE through the Middle East crisis this year, rallying hard on safe-haven demand during previous escalations. This week's pullback in the gold price takes some of the shine off that trade for now, even as the renewed conflict keeps risk sentiment on edge.

SOURCES: CNBC, Trading Economics, USAGold, and Moneyweb.