After closing at two-month lows of 7,567.3 points on Friday, the S&P/ASX 200 Index (ASX: XJO) is off to the races today.
At the time of writing the index of the biggest 200 listed Aussie stocks is up 1.2% at 7,658.3 points, having earlier been up more than 1.4%.
A most welcome turnaround, indeed.
Here's what's boosting investor sentiment.
What's lifting the ASX 200 today?
Two major headwinds pressuring the ASX 200 last week look to have abated over the weekend. Though they've not entirely disappeared from the radar.
As we reported on Friday, one of the biggest concerns investors had towards the end of the week was an escalation of the Middle East conflict leading to a full-out war between Iran and Israel.
Aussie stocks fell sharply when news broke during trading hours that Israel had launched a retaliatory strike within Iran's territory. The weekend also saw Israel attack an Iranian-backed militia base within Iraq.
It wasn't just the ASX 200 getting hit hard by those fears.
On Friday (overnight Aussie time), the S&P 500 Index (SP: .INX) closed down 0.9%. And the tech-heavy Nasdaq Composite Index (NASDAQ: .IXIC) ended the day down 2.1% as investors lowered their exposures to some of the riskier stocks.
However, futures for both the Nasdaq and S&P 500 have turned positive, indicating a likely rebound in US markets when the opening bell rings there on Monday.
This comes as investor fears of an expanded conflict have subsided following the measured military reprisal from Israel and the so-far muted verbal response from Iran.
Commenting on the evolving situation alternately pressuring and lifting global stock markets, Westpac Banking Corp (ASX: WBC) strategist Imre Speizer said (quoted by The Australian Financial Review), "When it became clear that key Iranian nuclear facilities were untouched and Iranian officials were downplaying the event, global markets regained their composure."
Marko Papic, an analyst at Clocktower added, "The information out of the region suggests that Israel has chosen to retaliate but not escalate the situation."
What else are investors mulling over?
The second major headwind dragging on the ASX 200 last week was fears that sticky inflation would delay rate cuts from the US Fed, the RBA and other leading central banks until late in 2024. Or possibly even push those rate cuts back into 2025.
Part of those inflationary pressures were (and are) being driven by high energy costs.
Last week the Brent crude oil price was trading above US$90 per barrel. And any major escalation of hostilities in the Middle East, a region responsible for some 30% of global oil supplies, could have seen prices spike above US$100 per barrel.
But oil prices retreated over the weekend as de-escalation came back into focus, with Brent crude currently trading for US$86.85 per barrel.
Now, lower energy prices won't guarantee earlier interest rate cuts all by themselves.
But if sustained, this will help tame inflation and offer potentially durable tailwinds for many ASX 200 stocks.
