Staff writers
Updated ,first published
The Australian sharemarket has retreated at the open as the Middle East conflict continues to cast a heavy shadow over global markets, while oil prices rose again.
The S&P/ASX 200 was 45.2 points, or 0.5 per cent, lower at 8571.9 in early trade, with seven of 11 industry sectors in positive territory. Energy companies advanced as oil prices climbed again while mining stocks lost ground.
The Reserve Bank will announce its interest rates decision on Tuesday, with money markets pricing in a three-in-four chance of a rate hike and see more tightening to come.
Oil rose as much as 3.3 per cent this morning after US attacks on Iran’s main export hub marked another escalation in the war that’s all but cut off global customers from the region’s energy supplies. Brent traded around $US106 a barrel after adding more than 40 per cent in the past two weeks, while West Texas Intermediate was near $US101. The Islamic Republic has carried out retaliatory attacks on Israel and Arab states in the Persian Gulf, after the US struck military sites on Kharg Island, which handles the bulk of Iran’s oil shipments. Local energy companies advanced, with Woodside Energy up 2.8 per cent, Santos rising 0.9 per cent and Ampol gaining 1.2 per cent in early trade.
China’s state-backed iron ore trader has told steel mills that it’s temporarily easing restrictions on one of BHP’s grades hit mining stocks, with Rio Tinto slumping 2.9 per cent and Fortescue shedding 2.7 per cent while BHP lost 0.9 per cent in early trade. Gold miners retreated as the price of the safe haven weakened, with Northern Star falling 3.9 per cent and Evolution Mining retreating 1.8 per cent.
Financial stocks are mixed, with ANZ Group adding 0.3 per cent, Commonwealth Bank edging up 0.2 per cent while National Australia Bank slipped 0.2 per cent and Westpac shed 0.5 per cent.
Tech stocks are mixed with WiseTech adding 1 per cent and Xero 0.2 per cent but Technology One retreated 0.7 per cent and NEXTDC lost 0.9 per cent.
On Wall Street, the S&P 500 fell 0.6 per cent on Friday after having been up as much as 0.9 per cent in early trading. The benchmark index is now down 3.1 per cent so far this year. The Dow Jones lost 0.3 per cent, and the Nasdaq composite finished 0.9 per cent lower. The indexes also ended the week with their third straight weekly loss.
“Everything’s just trading with crude oil at this point,” said Michael Antonelli, market strategist at Baird. “We’re basically in a holding pattern until we get kind of the hour-by-hour, day-by-day news about the conflict in the Middle East.”
Oil prices have been volatile since the start of the war. Iran’s actions have effectively stopped cargo traffic through the narrow Strait of Hormuz, where a fifth of the world’s oil typically sails. That has oil producers cutting production because their crude has nowhere to go.
In just over a week since the closure of the Strait of Hormuz, more than 12 million barrels of oil equivalent per day have been taken offline, according to independent research firm Rystad Energy.
If the war continues to hamper the production and transportation of oil from the Persian Gulf, it could cause a surge in inflation that could hurt the global economy.
A Fed rate cut could give the economy and job market a boost, but also potentially worsen inflation. The Federal Reserve is scheduled to hold its next interest rate policy meetings next week. However, Wall Street traders put the odds of a rate cut at less than 1 per cent, according to CME Group.
A new snapshot of consumer spending on Friday shows inflation crept higher in January, even before the Iran war caused oil and gas prices to spike.
The Commerce Department said prices rose 2.8 per cent in January compared with a year earlier. But excluding the volatile food and energy categories — which the Federal Reserve pays closer attention to — core prices rose 3.1 per cent, up from 3 per cent in the prior month and the highest in nearly two years.
Even so, consumers still lifted their spending at a solid 0.4 per cent pace in January, with their incomes rising at the same pace, according to the report.
The University of Michigan’s latest gauge of consumer sentiment on Friday showed consumer sentiment declined slightly to its lowest reading of the year as gasoline price hikes since the start of the war in Iran.
Wall Street also got an update on how US economic growth fared in the October-December quarter. The economy, hobbled by last fall’s 43-day government shutdown, grew at a sluggish 0.7 per cent annual rate, a downgrade from its initial estimate last month.
With AP, Reuters
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