ASX claws back $55b on war hopes, inflation surprise; Oil slumps, airlines lift

The Australian sharemarket rallied on Wednesday, boosting its value by $55 billion, as investors grew optimistic about Washington’s efforts to end the war in the Middle East, and inflation came in softer than forecast, raising hopes the Reserve Bank may have more flexibility on interest rates.

“We have clearly moved from what could have become the ‘obliteration’ stage in the US-Iran war towards a negotiated endgame, though given the lack of trust on both sides, that endgame is likely to be complex and drawn out,” said Robert Rennie, head of commodity and carbon research at Westpac.

The S&P/ASX 200 finished 154.90 points, or 1.85 per cent, higher at 8534.30, with nine of its 11 sectors in the green. Gains widened after the Australian Bureau of Statistics reported that inflation during the 12 months to February slowed to 3.7 per cent, down from 3.8 per cent in January. Economists had expected it to be unchanged. The Australian dollar was trading at US69.73¢.

The inflation reading shows that consumer prices remained elevated, but had started to stabilise before the war in Iran started on February 28. But the data doesn’t include the fuel shock from the conflict, which has pushed prices at the bowser to record levels. Federal Treasury modelling has warned inflation could jump above 5 per cent later in the year as the war pushes up prices.

Traders are now pricing in a 54 per cent chance of another interest-rate hike at the RBA’s next meeting in May, down from a roughly 60 per cent chance before the inflation data.

“Markets largely looked through the CPI as it predates the Iran conflict which is expected to drive a sharp lift in CPI fuel prices in the March release,” said Carol Kong, a strategist at CBA.

The ASX had already started on a good note in the morning, as oil prices swung lower and Wall Street futures rose after a report the US had sent Iran a 15-point plan to resolve the Middle East conflict, following a separate report by Israel’s Channel 12 that Washington was seeking a one-month ceasefire. By mid-afternoon AEDT, Brent, the international standard, was down 4.8 per cent to $US99.47 per barrel, while US West Texas Intermediate oil fell 4 per cent to $US88.65 per barrel.

“Crude remains the tip of the spear in this headline-driven market,” said Rebecca Babin, a senior energy trader at CIBC Private Wealth Group. “Reports that a potential 30-day ceasefire may be in the works are easing worst-case pricing scenarios and concerns around demand destruction. Details remain limited and headlines are fluid, but signs there may be an off-ramp are reducing some of the risk premium in the market.”

Airlines rallied on hopes a de-escalation of the war will relieve some of the pressure on their jet fuel bills, with Qantas Airways jumping 4.3 per cent and Virgin Australia soaring 11.5 per cent. Travel agency Flight Centre gained 3.1 per cent. Qantas’ lower-cost carrier Jetstar has cut more than 10 per cent of its scheduled flights between Australia and New Zealand, as well as within New Zealand, as the Middle East oil price shock bites into demand, it said in the morning, calling the measure “temporary”.

Mining stocks also advanced, with BHP jumping 3.3 per cent, while Rio Tinto added 1.6 per cent and Fortescue rose 1.8 per cent. A $2 billion taxpayer-funded subsidy has been announced for Rio Tinto’s Queensland aluminium smelter, as the Albanese government doubles down on its commitment to save local manufacturing with another bailout.

Gold miners surged as gold prices extended gains after the reports that the US is seeking a diplomatic route to ending the war snapped the precious metal’s nine-day losing streak. Bullion rose as much as 2.8 per cent to return above $US4600 an ounce, adding to a 1.6 per cent jump in the previous session. Northern Star Resources gained 7 per cent, Evolution Mining jumped 8.5 per cent and Newmont rallied 8.9 per cent.

Amid the revived risk-on mood on the ASX, cyclical sectors such as consumer-discretionary stocks also perked up. Bunnings and Officeworks owner Wesfarmers rose 0.6 per cent, JB Hi-Fi was up 2.6 per cent and kitchen appliances maker Breville gained 4.2 per cent. Eagers Automotive, which sells BYD’s electric cars in Australia, jumped 5.6 per cent amid bets on accelerating demand for them in the fuel crisis.

Financial stocks ended the day mixed. The Commonwealth Bank added 0.6 per cent, Westpac gained 1.7 per cent, and ANZ Bank added 1.2 per cent. However, National Australia Bank edged down 0.1 per cent after solid gains earlier in the day. Investment bank Macquarie climbed 5.1 per cent.

Energy stocks slid lower on the falling oil prices. Woodside Energy slumped 3.2 per cent, Santos lost 2.3 per cent and refiners Ampol and Viva Energy shed 2.5 per cent and 2.9 per cent, respectively.

Coal miners Yancoal and Whitehaven Coal also fell, finishing down 3.9 per cent and 4.6 per cent.

On Wall Street overnight, the S&P 500 fell 0.4 per cent after yo-yoing through the day. The Dow Jones dipped 84 points, or 0.2 per cent, while the Nasdaq composite sank 0.8 per cent.

Markets have been volatile since President Donald Trump raised hopes that the war with Iran could end soon when he said on Monday that the United States and Iran held productive talks “regarding a complete and total resolution of our hostilities in the Middle East.” His announcement, which came just before Wall Street opened for trading, caused financial markets worldwide to reverse momentum immediately.

It calmed worries that the war may cause a long-term disruption to the oil and natural gas industry in the Persian Gulf, one big enough to send a blast of inflation to the region’s customers worldwide.

But financial markets have since received both encouraging and discouraging signals about the war. On one side, attacks continued in the Middle East on Tuesday after Iran denied having direct talks with the US. On the other, Pakistan’s Prime Minister Shehbaz Sharif wrote on X that his country is ready to “facilitate meaningful and conclusive talks” to end the Iran war.

Trump said Iran had offered a “present” as a show of good faith in negotiations, noting it was related to energy flows via the Strait of Hormuz. Washington and regional mediators are discussing the possibility of holding high-level peace talks as soon as Thursday, but await a response from Tehran, Axios reported.

“The market has been swayed by a willingness to forge some sort of agreement that takes the conflict towards a ceasefire,” said Chris Weston, head of research at Pepperstone Group in Melbourne. Safe passage through the strait would be the “cornerstone” of any future agreement, he said.

With AP, Reuters, Bloomberg

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