Hi, I’m Dennis Li, Associate Portfolio Manager at Morningstar Investment Management. Welcome to the Morningstar Market Minute.

Last week was a huge week for global central banks. Markets paid close attention to their interest rate decisions, especially in the current environment. The RBA was the only one that pulled the trigger on a rate hike, taking the cash rate to 4.1%. The other central banks have all decided to hold. But if we look under the hood, expectations for rate cuts this year have been scaled back, and even at the Fed, the possibility of a rate hike was discussed. What it means is that central bank policies are more unpredictable now than at the start of the year.

We’re now into the 3rd week of the Middle East war. After exchanging threats to escalate, Trump said the talks with Iran are going well and a deal is possible. And this is again showing us how quickly market sentiment could flip quickly based on a single headline. Brent oil has dipped below $100 per barrel and broad equity markets rebounded last night, but nonetheless there are still uncertainties. The shutdown of Hormuz has exposed the fragility of global supply chains, and inflation concerns are being priced into cyclical sectors which are down sharply this month. The ripple effects are showing up in the bond market too. Australia’s 10-year bond yield is above 5%, and at these levels, government bonds are starting to look more attractive.

Australian and major Asian share markets are recovering after a terrible month. Both Japan and Korea have a strong dependency on oil imports, so high oil prices have sent the yen and the won lower this year. In China, both onshore and Hong Kong markets were also down last week. Higher oil prices would push up manufacturing costs there, but given China is the largest electric vehicle market, some consumers might be less affected by higher energy costs.

Looking back through history, we’ve been in similar situations before, some turned out to be just market corrections, and some turned into full-blown crashes. The difficult part for investors is telling whether we’re at the beginning or at the end of a decline. We know investing in uncertainty often feels uncomfortable, but the best approach is to avoid panic selling, focus on the long term, and make sure you have enough diversification in your portfolio.

That’s all for this week, and we’ll see you next time.