Devon Funds Morning Note - 04 March 2026

Wednesday 4th March 2026

War, Oil and Sell-Offs

Global

US equities remain under pressure, with the S&P 500, Nasdaq, and Dow all trading lower as the conflict in the Middle East escalates and energy prices surge. The S&P 500 is down 0.9%, the Nasdaq is off 1.0%, and the Dow Jones has fallen 0.8%. Volatility has jumped, Brent crude has pushed back above US $80 and has risen to as high as US $85 per barrel as flows through the Strait of Hormuz remain constrained.

After an initially cautious reaction, markets are now taking a more downbeat view of the Middle East crisis, with investors seeing diminishing odds of a quick resolution. Iran is still launching missiles and drones across the region, including two drones that struck the US embassy in Riyadh with only minor damage, while the embassy has warned of imminent missile or drone threats around Dhahran, home to Saudi Aramco’s headquarters and largest oil fields.

Tensions around the Strait of Hormuz escalated further after an adviser to the IRGC commander told state television that Iranian forces “will set fire to any ship” attempting to transit the chokepoint. Iraq has begun curbing output at its biggest oil fields as storage nears capacity and exports remain constrained by the strait’s disruption, with reports suggesting production losses in the coming days could climb to around 3 million barrels per day.

President Trump has maintained an aggressive media blitz, arguing that Iran’s military capabilities are being steadily worn down even if its forces are likely to “keep lobbing missiles for a while,” saying they are “running out of launchers” and targets. Pushing back on claims that US arsenals are being depleted, he has insisted that American munitions stockpiles at medium and higher grades “have never been higher or better,” and that the US could, in his words, wage war “forever” if required.

Reports have suggested that the Trump administration is weighing direct support for ensuring tankers moving through the Strait of Hormuz. One option under consideration is for the US government to provide, or help arrange, war risk insurance for vessels, in response to private insurers sharply hiking premiums or pulling cover altogether as attacks in the Gulf escalate.

In global markets, the effects of the conflict are being felt. Japan’s Nikkei 225 fell 3.1% Korea’s Kospi, which relies on the Middle East for roughly 70% of its crude oil, dropped 7.2%, while the Euro Stoxx 600 closed down 3.1%.

New Zealand

Back home, the NZX 50 slipped for a second session, falling 0.3% as ongoing Middle East tensions, weaker US futures, and higher oil prices weigh down on general risk appetite. The weakest on the day included Ryman (-4.2%), Gentrack (-2.6%), and Infratil (-1.9%). In the rates market, Kiwi rates moved only modestly, reinforcing its status as a lower beta market in periods of global stress. Government bond yields rose about 3–5bps across the curve, while swap rates lifted 3bps in the 2 year to 2.98% and 4bps in the 10 year to 4.01%.

Infratil has provided an independent valuation update for three key portfolio holdings for the December 2025 quarter. On a midpoint basis, the assessed value of US renewables platform Longroad Energy fell by US$3m, and European clean energy developer Galileo declined by €6.8m, while New Zealand based Mint saw its valuation increase by NZ$3m. These are relatively modest quarter on quarter moves, and the underlying valuation methodologies remain unchanged from prior periods.

The latest Global Dairy Trade auction delivered a broad gain overnight, with the overall index increasing 5.7%. The move was attributed to strength across all key products: anhydrous milk fat climbed 5.7%, butter rose 6.1%, cheddar added 4.3%, skim milk powder jumped 9.1%, and whole milk powder increased 4.5%. The across-the-board lift reinforces the sense that global dairy markets are tightening, which is supportive for exporter returns and farmgate milk price expectations.

Later today, the fourth quarter terms of trade print will be released, giving an updated read on how New Zealand’s export prices are tracking relative to import prices, and thus the country’s purchasing power. Consensus expects a solid 0.8% quarter on quarter rise, which would lift annual growth to around 2.3% and keep the terms of trade near historically elevated levels that have been supported in recent years by strong dairy and softer import prices. A result in line with expectations would underline that external price dynamics remain a tailwind for national income, even as volumes and global commodity prices are subject to renewed volatility around the Middle East and oil.

Australia

Across the Tasman, the ASX 200 felt the prompt to sell with the index slipping 1.3% and pulling back from record highs. Focus remained on oil, with Energy the only sector that remained in the green alongside defensive Consumer Staples Names. Seeing only small advances in oil names themselves, Karoon (+1.7%), STO (+1.0%), and Woodside Energy (+0.8%) gained, while the heavy lifting was mainly coal names in the sector with New Hope Corp (+7.4%), Yancoal (+4.9%), and Whitehaven Coal (+3.2%) receiving focus after Qatar shut the doors on its largest liquified natural gas plant.

On the opposite end, Materials were hit the hardest, with Gold miners (-3.1%) retreating from yesterday’s strength. In the same space, Capstone Copper slid 8.1% after providing an underwhelming result, while Lithium names tumbled (Liontown, Pilbara, and IGO) 6-9.0% as traders reassessed news from Zimbabwe, which initially implemented an abrupt ban on exports of raw minerals, will now be rolled back, unwinding the prospect of Australia’s bullish supply.

Tech continues its decline, Life360 fell 17.6%, giving back a 28.4% intraday spike following its Q4 update with earnings coming in 6% ahead, but the monthly active users will outlook is heavily weighted to the second half of the year, with no clarification on how growth will materialise. Elsewhere, Magellan Financial Group jumped 21.9% after trading resumed post completing placement and announcing the Barrenjoey merger.

In economic news, the Australian dollar firmed after RBA Governor Michele Bullock struck a hawkish tone, signalling the Bank remains prepared to keep policy restrictive (and potentially hike again) if inflation doesn’t track back to target quickly enough. Bullock’s emphasis on upside inflation risk and the need to “do what it takes” to tame price pressures pushed market pricing toward a later and shallower easing cycle, lifting Australian yields 14-15bps across the curve.

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