War concerns weigh on ASX as airlines, retail and mining stocks fall

The Australian sharemarket had a gloomy Tuesday session as companies dependent on consumer spending, travel stocks and miners declined amid worries the Iran war will drag on, clogging the flow of oil, disrupting global transport and making inflation even worse.

The S&P/ASX 200 fell 123.60 points, or 1.3 per cent, to 9077.30 in a broad-based sell-off, with all 11 industry sectors bar energy and consumer staples in the red. The bourse had edged higher on Monday. The Aussie dollar traded at US70.84¢ as of 5.06pm AEDT.

Futures contracts for Wall Street’s S&P 500 Index and the Nasdaq 100 were 0.8 per cent and 1 per cent lower at the end of the Australian trading day, suggesting falls when trading opens in New York. Bond yields went up as concerns that surging energy costs would fan inflation curtailed hopes for rate cuts in the world’s largest economy.

Traders are now pricing in a first US rate cut in September, with bets on a third reduction this year fading. That shift comes on top of global equity markets already unsettled by the billions companies are pouring into artificial intelligence and concerns over the technology’s disruptive impact.

“There are more questions than answers right now,” said Chris Larkin at E*Trade from Morgan Stanley. “A stabilising energy picture could have a positive ripple effect, while concerns about a longer-term disruption could have the opposite.”

On the local market, mining stocks fell, with gold stocks stepping back some of their gains from Monday as the rally in gold prices moderated. Bullion climbed as much as 0.9 per cent to about $US5360 an ounce, having added more than 3 per cent over the previous four sessions.

Traders weighed the prospect of tighter Fed policy to tame inflation spurred by the conflict in the Middle East, which boosted the US dollar as a safe alternative. Northern Star Resources fell 3.2 per cent, Newmont lost 2 per cent and Evolution Mining slumped 4.5 per cent.

Iron ore giants BHP, Fortescue Metals and Rio Tinto were also lower amid the concerns about the fallout of the war for the global economy, finishing down 2.6 per cent, 4.5 per cent and 2.4 per cent, respectively. A fall in silver prices pushed down South32 – which owns Australia’s biggest silver mine – by 3.8 per cent.

Energy companies were the only bright light on the ASX, boosted by the surge in oil prices. Oil climbed further during the session as the US and Israel stepped up their war against Iran, while Tehran threatened a full closure of the Strait of Hormuz. Brent rose towards $US79 a barrel, after rising about 7 per cent overnight, while West Texas Intermediate was near $US72.

Woodside shares were up 0.8 per cent, while Santos finished 1 per cent higher. Ampol, the nation’s biggest refiner, jumped 3.2 per cent.

Boosting the energy sector even more were coal producers. Yancoal jumped 4.9 per cent and Whitehaven Coal was up 3.2 per cent. Power station coal prices rose the most in three years as an unprecedented shutdown of Qatar’s liquefied natural gas plant raised the need for fuel-switching in the electricity sector. Newcastle coal futures, the Asian benchmark, jumped 8.6 per cent to $US128.70 a tonne on Monday, the highest price for a front-month contract since December 2024.

Meanwhile, interest rate speculation weighed on companies dependent on consumer discretionary spending, as higher borrowing costs would leave households with less money to shop. Australia’s interest rate-setting board is “very alert” to the potential implications for inflation expectations from the Middle East conflict and is “well positioned” for a policy response if required, Reserve Bank governor Michele Bullock said at a business summit in Sydney in the morning.

Wesfarmers, the owner of the Bunnings, Kmart and Officeworks chains, lost 3.6 per cent. Electronics retailer JB Hi-Fi was down 3.2 per cent, while furniture seller Harvey Norman shed 2.3 per cent. Investors switched instead to the more defensive consumer staples, helping Woolworths and Coles edge up 0.6 per cent and 0.1 per cent, respectively.

Airline and travel stocks extended their falls. Qantas was down 1.8 per cent and major Qatar Airways code-share partner Virgin Australia lost 5.8 per cent, as the escalating conflict sent oil prices surging and continued to disrupt flights via the region. Flight Centre lost 1.8 per cent.

US President Donald Trump said he expected the attacks could last four to five weeks, but “we have the capability to go far longer than that”. At least 11,000 flights to and from Middle Eastern countries have been cancelled, affecting more than 1 million travellers worldwide, according to Cirium, an aviation data firm.

The interest-rate-sensitive tech sector also declined, wiping out early gains. WiseTech, the nation’s biggest tech concern, dropped 2.3 per cent and software maker Xero lost 1.4 per cent.

Life 360 plunged 17.6 per cent even after the tracking app said it had swung into the black last year with $US150.8 million ($210.4 million) in net income, boosted by a tax gain. Without that, it made a $US32.5 million profit as sales rose 32 per cent. The company flagged sales growth of 31 per cent to 39 per cent this year, but investors were underwhelmed by its profit margins for the current quarter.

On Wall Street overnight, the S&P 500 fell as much as 1.2 per cent at the start of trading, with cruise lines and airlines leading the way down. But it quickly erased those losses, in part because past military conflicts haven’t usually created sustained drops for the market, and finished the day with a gain of less than 0.1 per cent. The Dow Jones Industrial Average dipped 0.1 per cent, and the Nasdaq composite rose 0.4 per cent. Both also came back from steep early losses.

For this war to knock down Wall Street in a significant and sustained way, the price of oil would perhaps need to jump above $US100 a barrel, according to strategists at Morgan Stanley led by Michael Wilson.

That helped the US stock market pare some of its steep opening losses. Morgan Stanley says the S&P 500 has climbed an average of 2 per cent, 6 per cent and 8 per cent in the one, six and 12 months following “geopolitical risk events” historically. That’s going back to the Korean War, which began in 1950, and the 1956 Suez crisis.

At the moment, though, fear is still running through Wall Street.

Airline stocks were some of the sharpest losers on the US market overnight. Not only do higher oil prices threaten their already big fuel bills, the fighting in the Middle East also closed airports and left travellers stranded. United Airlines fell 2.9 per cent, while American Airlines lost 4.2 per cent.

Helping to limit Wall Street’s losses – as in Australia – were oil companies. Exxon Mobil climbed 1.1 per cent, while Occidental Petroleum rose 2.1 per cent.

Companies that make equipment for the military also strengthened. Lockheed Martin climbed 3.3 per cent and RTX rallied 4.7 per cent.

Palantir Technologies, whose software helps global defence agencies, jumped 5.8 per cent for the biggest gain in the S&P 500.

Big tech stocks also helped to support the market. Nvidia rose 2.9 per cent and was the strongest single force pushing upward on the S&P 500.

With AP and Bloomberg

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