ASX finishes lower as oil jumps again on renewed Iran tensions

The Australian sharemarket declined on Thursday, as oil prices jumped on renewed Middle East tensions, stoking concerns about inflation. Miners and banks led the losses.

The S&P/ASX 200 finished down 66.8 points, or 0.8 per cent, at 8660.90, with five of its 11 sectors in the red and six in the green. The market decline came after a choppy, directionless session on Wednesday. The Australian dollar was trading at US69.54¢.

Oil rose after a report that the White House asked the Pentagon to draw up strike options against Iran that could be executed before the midterm elections, and as a storm shut some US output. Also, Iran-backed Houthis struck two airports in Saudi Arabia, killing three people as the group intensified its attacks on the kingdom, while also fighting Riyadh-backed forces in Yemen.

Meanwhile, a tanker was struck by projectiles off the coast of Qatar on Wednesday, according to a report from UK Maritime Trade Operations, a rare attack deep inside the Persian Gulf. It’s the first reported strike on a tanker deep within the gulf in about a month.

Global benchmark Brent rose 2.5 per cent to approach $US103 a barrel in the afternoon. The advance pressured US Treasuries, pushing up the 10-year yield by three basis points to 5.32 per cent, near levels last seen in 2002. Australian 10-year government bonds, however, eased by a basis point to 5.39 per cent.

Rising oil prices stoke energy costs for companies, also stoking inflation across the economy, weighing on corporate profits and slowing economic growth.

Australia’s mining heavyweights took the brunt in Thursday’s session, leading the market decline. BHP – the biggest stock on the local market – finished down 2 per cent and Rio Tinto shed 2.9 per cent. Lynas Rare Earths slumped 5.3 per cent.

Fortescue, the only pure-play iron ore producer, lost 1.4 per cent after saying its iron ore shipments fell 6 per cent in the September quarter to 46.8 million tonnes due to maintenance shutdowns. Inventories rose as it sold less than that – 42.9 million tonnes – amid its protracted negotiations with China’s state buyer. At the same time, net debt ballooned from $US900 million at the end of June to $US2.8 billion as of September 30, after paying out its dividends.

Gold miners also struggled. Northern Star Resources dropped 1.4 per cent, Evolution Mining shed 2.2 per cent and Newmont lost 1 per cent after bullion prices fell to a two-month low as the US dollar strengthened and the heightened Middle East tensions fuelled fears over war-driven inflation; investors weighed prospects for at least one more US rate hike this year. Higher interest rates reduce the investor appeal of gold, which doesn’t earn investors any interest.

Bullion steadied in the afternoon, but had dropped as much as 2.3 per cent to below $US4100 an ounce overnight – its lowest intraday price since early August.

The banking heavyweights, having been up during morning trade, turned south in the afternoon as oil prices pulled higher. All big four banks closed the session in the red. Commonwealth Bank fell 1.5 per cent, while National Australia Bank, Westpac and ANZ Bank each shed 1.6 per cent.

Airline stocks suffered amid concerns over fuel prices, with Qantas Airways both down 1.8 per cent.

An 8 per cent slump in Megaport, which sells a software platform that allows big businesses to create and manage network connections, pulled the tech sector down. It was otherwise mixed, with Codan down 1.3 per cent, software makers Xero and WiseTech up 3 per cent and 0.5 per cent and data centre operator NextDC also up 0.5 per cent.

The session’s big loser was construction services company Maas Group, which finished down 22.4 per cent amid concerns over its backing of data centre start-up Firmus’ planned $44 billion sharemarket float. The IPO is on life support after investors baulked at the price, with its bankers scrambling to stop the public offering from being called off. Maas, which owns 3.2 per cent of Firmus and has contracts to help build its facilities, told the ASX it considers that “speculation [about the float] has influenced investor sentiment” towards its shares.

Meanwhile, defensive sectors such as utilities did well, with power companies Origin and AGL Energy up 1.7 per cent and 0.7 per cent. Among consumer staples, supermarket chains Woolworths and Coles were up 1.7 per cent and 1.4 per cent, respectively.

Oil producers jumped thanks to the rise in prices for fuel. Woodside gained 2.6 per cent, Santos rose 1.5 per cent, and refiners Ampol and Viva Energy were up 1 per cent and 1.3 per cent, respectively.

Coal mining companies Yancoal (down 0.9 per cent) and Whitehaven (down 0.7 per cent) both fell, after approval for a major Hunter Valley coal mine expansion was declared invalid by the High Court on Wednesday in a landmark decision that will force NSW planning authorities to reckon with emissions from Australian coal burnt overseas.

Legal and industry experts have warned the ruling will ripple across the sector, potentially exposing recent coal mine approvals to judicial review.

On Wall Street overnight, the S&P 500 slipped 0.2 per cent, a day after topping its prior all-time high set in August. The Dow Jones dropped 0.7 per cent, while the Nasdaq composite fell 0.2 per cent from its own record.

US stocks felt pressure amid the rising yields swung in the bond market. Higher yields put downward pressure on prices for stocks and other investments. They can also slow the economy by making it more expensive for everyone to borrow money. Yields swung with oil prices, which continue to yo-yo amid uncertainty about when the war with Iran will allow the industry to return to normal.

The International Energy Agency said on Wednesday that its members supported accelerating the release of oil from inventories that they announced earlier this year, with a particular emphasis on diesel fuel.

Also pushing up on bond yields are worries about how much debt the US government and others worldwide have racked up, plus how much more they add to it by the day.

The head of the International Monetary Fund said on Wednesday that record levels of debt for governments is one of the three major crosscurrents driving where the global economy is heading, along with artificial intelligence technology and high energy prices.

“Some very tough political choices stare us in the face,” IMF managing director Kristalina Georgieva said in a speech in Singapore.

She pointed in particular to France and Italy, among other European countries with high debt.

France’s CAC 40 stock index dropped 1.2 per cent for one of the world’s biggest losses, after yields for French bonds jumped amid worries about the government’s debt and strained budget. Protests across France have raised pressure on the government to increase spending, which could add further to its debt.

On Wall Street, Worthington Steel fell 6.9 per cent after the metals processing and manufacturing company reported weaker results for the latest quarter than analysts expected.

The pressure is on companies to deliver big growth in profits. Analysts have high expectations for the coming earnings reporting season. They’re forecasting earnings growth of nearly 30 per cent, according to FactSet. If companies fall short of that bar, stock prices could easily fall further.

With AP, Bloomberg

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