Australia's benchmark S&P/ASX 200 index closed at 8,731.70 on Friday, posting a gain of 138.80 points, or 1.62%. This marked the strongest single-day advance in seven weeks, as investor sentiment was lifted by reports of a potential truce between the United States and Iran.
The rally erased Thursday's sharp decline of 1.43%, which had been triggered by rising oil prices amid escalating Middle East tensions. For the week, the index added approximately 0.9%, while May ended with a modest advance of around 0.8%.
According to Reuters, the US and Iran have reached a memorandum of understanding that would extend their ceasefire for 60 days, contingent on approval from US President Donald Trump. The prospect of reopening the Strait of Hormuz is significant for Australia, as a substantial portion of global oil and liquefied natural gas transits through this critical waterway. Any disruption there directly impacts fuel prices, shipping costs, and inflation.
Madison Cartwright, senior geo-economist at Commonwealth Bank, assessed the probability of a deal at 70% by June 6, as quoted by ABC News. Cartwright noted that political pressure and economic costs on the US and President Trump are incentivizing a resolution.
The market rally was broad-based but uneven. Materials, financials, and industrials led the advance, while energy and utilities lagged. Major mining stocks posted strong gains: BHP climbed 2.91%, Rio Tinto rose 1.18%, and Fortescue Metals Group added 2.43%. These moves were driven by the overall risk-on shift rather than any company-specific news.
The positive sentiment was further supported by midweek inflation data. The consumer price index eased to 4.2% in April, down from 4.6% in March. However, the trimmed mean inflation measure ticked up to 3.4%, still above the Reserve Bank of Australia's target range of 2% to 3%. Following the CPI release, traders reduced the probability of an August rate hike to 40% from 51%, according to Reuters. Harry McAuley, economist at Oxford Economics Australia, maintained his forecast that headline inflation will peak at 4.9% in the second quarter before falling below the target by mid-2027.
Australian business investment surged 6.5% in the March quarter to A$52.57 billion, exceeding expectations. Much of the spending was directed toward plant and machinery for data centers. Next week's national accounts will test the breadth of this strength, with markets watching to see if it extends beyond artificial intelligence and infrastructure.
Looking ahead, market attention will turn to a busy week of domestic data. The calendar includes speeches by RBA Governor Michele Bullock and Deputy Governor Andrew Hauser, first-quarter national accounts, and data on house prices, building approvals, and goods trade. IG tips Q1 GDP growth of 0.5% quarter-on-quarter, with a result below 0.3% signaling softer demand and above 0.7% potentially reigniting rate hike talk.
