Australian Shares Suffer Steep Losses Amidst Escalating Oil Price Fears
Australia’s share market experienced its second-worst session of the year on Wednesday, grappling with anxieties over a sustained oil price shock that threatens to fuel inflation and necessitate more aggressive interest rate hikes. The benchmark S&P/ASX200 index plummeted by 176.1 points, a significant 1.94 per cent drop, to close at 8,901.2. The broader All Ordinaries index mirrored this decline, shedding 180.1 points, also 1.94 per cent, to finish at 9,117.1.
The primary driver behind the market’s downturn is the continued surge in oil prices. Brent crude has seen a dramatic increase of over 15 per cent since US-led air strikes on Iran last weekend ignited fears of a wider regional conflict.
Market analysts suggest that until a clear de-escalation or a definitive point of peak escalation in the conflict is reached, markets are likely to remain volatile and highly correlated. Kyle Rodda, senior market analyst at Capital.com, explained that the current environment has created a singular “one trade” scenario for markets, where almost every asset class is dictated by this overarching macro risk. He noted that unlike previous conflicts, such as the ’12-day War’ between Israel and Iran in 2025, where a peak in escalation was more discernible, the current situation lacks clarity. “The problem is it doesn’t look very clear, at least right now, that we’re near that point,” Rodda commented, adding that markets are currently leaning towards the belief that there is an inertia towards greater escalation rather than de-escalation.
The impact of this geopolitical tension has not been confined to Australia. Global markets have been significantly disrupted, particularly for nations heavily reliant on energy imports, such as Germany. The DAX index in Germany has seen a sharp decline of almost six per cent over two trading sessions. Similarly, South Korea’s KOSPI index has experienced a severe sell-off, tanking nearly 17 per cent since the weekend, marking its worst two-day performance since 2008.
Sector-Wide Sell-Off Hits Mining and Financials
Across the Australian Securities Exchange (ASX), all 11 sectors registered losses, with raw materials stocks bearing the brunt of the downturn. The strength of the US dollar weighed heavily on gold and silver prices, while the escalating oil prices cast a shadow over the global growth outlook, consequently impacting industrial metals producers.
Mining giants were significantly impacted. BHP saw its share price tumble by 3.5 per cent to $55.68, effectively erasing four days of record-breaking gains in a mere two sessions. Rio Tinto and Fortescue also experienced substantial slumps, alongside a multitude of other miners, including lithium producers and rare earths stocks. The entire mining segment collectively plunged three per cent into negative territory.
Interestingly, gold stocks were hammered despite the precious metal itself seeing gains during the session, trading at $US5,156 ($A7,368) an ounce.
The heavyweight financial sector also succumbed to the broader market weakness, falling by almost two per cent. This widespread decline affected banks, insurers, and investment groups alike.
Energy Stocks Struggle Despite Oil Price Surge
In a somewhat counterintuitive move, energy stocks, despite being the primary beneficiaries of rising oil prices, were also in the red. While oil and gas giant Woodside and Whitehaven Coal saw modest advances, the sector as a whole could not escape the prevailing negative sentiment.
Inflationary Pressures and Rate Hike Fears Intensify
The sustained energy shock has amplified concerns about intensifying inflation, which is already proving to be “sticky.” This has, in turn, stoked fears of more aggressive interest rate hikes by central banks.
Josh Gilbert, a market analyst at eToro, drew parallels between the current market reaction and the events of March 2022, when Russia’s invasion of Ukraine triggered a global surge in oil prices, leading to a spike in inflation and aggressive rate hikes by the US Federal Reserve. “The risk now is that history repeats, with the Iran conflict pushing energy prices high enough to force central banks into a more hawkish stance than markets currently expect,” Gilbert cautioned.
Australian Dollar Weakens as Safe Haven Demand Surges
The Australian dollar has weakened against the US dollar, trading at 69.99 US cents, down from 70.88 US cents on Tuesday. This decline is attributed to increased safe-haven buying of the US dollar amidst global uncertainty. The Aussie’s dip occurred despite the release of stronger-than-expected annual growth figures of 2.6 per cent, which failed to alleviate concerns about impending interest rate hikes.
Market sentiment suggests a growing probability of a rate hike at the Reserve Bank of Australia’s March meeting, with an increase by May at the latest being priced in by rate markets.
Here’s a summary of the day’s key market movements:
- S&P/ASX200: Fell 176.1 points, or 1.94 per cent, to 8,901.2.
- All Ordinaries: Lost 180.1 points, or 1.94 per cent, to 9,117.1.
Currency Snapshot:
The Australian dollar’s performance against major currencies:
- US Dollar: 69.99 US cents (down from 70.88 US cents at 5pm AEDT on Tuesday).
- Japanese Yen: 110.28 Japanese yen (down from 111.58 Japanese yen).
- Euro: 60.36 euro cents (down from 60.77 euro cents).
- British Pound: 52.55 British pence (down from 53.04 British pence).
- New Zealand Dollar: 118.77 NZ cents (down from 119.59 NZ cents).
