After spiking to a five-month high, the price of brent crude slumped to below $US 70 a barrel after Iran’s attacks on the United States’ largest military air base in the Middle East. The missile attacks on Al Udeid which resulted in no reported injuries or deaths have been interpreted as a sign of de-escalation from Iran. Shane Oliver, AMP’s chief economist and head of investment strategy, says financial markets are betting the risk of an energy supply shock has now receded with the price of oil now below what it was when Israel first attacked Iran. Dr Oliver says energy markets and share markets are likely to look past the war – even if the ceasefire announced by US President Donald Trump fails – that is unless oil supplies are disrupted. He says such an approach from markets is consistent with historical experience of past conflicts from the Middle East. Dr Oliver points out there are ongoing concerns about whether the share market is overvalued. He says the risk premium offered on the Australian share market when looking at the earnings yield compared to the bond yield is very, very low. Dr Oliver says earnings growth is quite weak and could be negative for another financial year, but not necessarily in relation to the situation in the Middle East.
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