Australian Markets Facing Headwinds: Breadth Weakness and Shifting Gold Dynamics
The Australian equity market, as represented by the ASX 200, is currently navigating a challenging period. While the headline index might appear to be holding its ground, a closer examination reveals significant underlying weakness across a broad swathe of listed companies. This disconnect between the index performance and the health of individual stocks is a key concern for investors.
Investor Sentiment Shows Volatility
Investor sentiment surveys have painted a mixed picture recently. A notable spike in bearish sentiment was observed in the week ending 8 March, with a significant majority of respondents expecting market declines. However, this pessimism sharply reversed in the following week, even as market conditions continued to deteriorate. This abrupt shift, particularly given the larger sample size in the later survey, suggests a degree of market irrationality or a rapid recalibration of expectations that doesn’t necessarily align with fundamental economic realities. The lack of a clear, consistent trend between sentiment and the ASX 200 performance further complicates interpretation.
Broad Market Weakness Beneath the Surface
The ASX 200 has experienced a decline of approximately 8% from its recent peaks and is down 3% year-to-date. However, the true extent of the market’s struggles is more apparent when analysing the performance of individual constituents relative to their 52-week highs.
- Widespread Declines: A staggering 88% of ASX 200 companies are currently trading more than 10% below their 52-week highs. This indicates a pervasive weakness that extends far beyond a few laggard sectors.
- Significant Drawdowns: The situation is even more concerning for nearly half of the index, with 42% of companies trading more than 30% below their peak. This confirms a broad and substantial market downturn.
- Sectoral Pain Points:
- Technology and Health Care: These sectors are bearing the brunt of the sell-off, with 100% of their constituents down more than 10% from their highs. More than half of the companies in these sectors have seen their share prices plummet by over 40%.
- Consumer Discretionary: This sector is also under immense pressure. Every company within the Consumer Discretionary space is down by more than 10%, and a significant 80% are experiencing drops of over 30%.
- Defensive Pockets: In contrast, the Energy and Utilities sectors are showing more resilience. Only 33% of Energy companies are down more than 10%, and no Utilities company has fallen by more than 20%.
- The Banking Buffer: The relative stability of the ASX 200 is largely attributable to the performance of the “Big Four” banks. Commonwealth Bank (CBA), National Australia Bank (NAB), and Westpac are all showing year-to-date gains of approximately 9.7%, 7%, and 5% respectively, cushioning the broader market decline.
Gold’s Uncharacteristic Struggle
The gold market has experienced a dramatic downturn recently, with the All Ords Gold Index falling approximately 32% from its record high on March 2nd. This rapid decline has erased three months of gains in just three weeks, leaving the index down 15% year-to-date. This performance is particularly perplexing given the traditional drivers that should theoretically propel gold prices higher.
Several factors may be contributing to gold’s current weakness:
- Shift in Reserve Accumulation: Since 2022, the freezing of Russian reserves has prompted surplus countries to diversify away from US Treasuries. Gold has emerged as a primary “neutral” reserve asset. This shift has made gold’s performance more pro-cyclical, meaning it tends to rally when surplus economies generate strong export revenues and sell off when these revenues are disrupted. The current geopolitical tensions, particularly concerning the Hormuz Strait, are impacting Gulf export revenues, thereby affecting reserve accumulation.
- Chinese Economic Slowdown: China, a major oil importer, is facing slowing economic growth and compressed surpluses. This dynamic is also affecting other Asian economies like Korea, Taiwan, and Japan, collectively weakening the demand for gold as a reserve asset.
- Leveraged Fund Liquidations: Leveraged funds and Commodity Trading Advisors (CTAs) are reportedly selling gold to meet margin calls in other markets. Given gold’s substantial gains in 2025 and its status as the most liquid asset with significant embedded profits, it becomes a prime candidate for liquidation during forced selling.
- Macroeconomic Headwinds: A firmer US dollar, rising real yields, a hawkish stance from the US Federal Reserve, and systematic long liquidations are all acting as headwinds for non-yielding assets like gold.
Mike Henry’s Tenure at BHP Concludes
BHP’s CEO, Mike Henry, is stepping down after a significant period leading the mining giant. During his approximately six-year tenure, Henry oversaw several key strategic initiatives and achievements:
- Jansen Project Approval (August 2021): The massive Jansen Stage 1 potash project in Saskatchewan, Canada, was approved. Despite cost escalations from an initial US$5.7 billion to US$8.4 billion, the project secures BHP’s long-term access to a critical commodity with strong demand drivers related to global food security.
- Dual-Listed Company (DLC) Unification (January 2022): BHP successfully dismantled its historic dual-listed company structure, consolidating under a single Australian listing. This complex restructuring streamlined governance and improved capital allocation flexibility, also facilitating the use of BHP shares for mergers and acquisitions.
- Woodside Petroleum Merger (June 2022): BHP divested its petroleum business to Woodside Energy in a deal valued at around $40 billion. This move allowed BHP to exit the fossil fuel sector and sharpen its focus on “future-facing commodities,” with BHP shareholders receiving Woodside shares in exchange.
- OZ Minerals Acquisition (2023): The acquisition of copper miner OZ Minerals for approximately US$6.4 billion significantly bolstered BHP’s copper portfolio, adding key assets like Prominent Hill and Carrapateena.
Other notable achievements during Henry’s leadership include:
- Anglo American Bids (2024): While ultimately unsuccessful, Henry led two attempts to acquire rival Anglo American.
- WAIO Cost Leadership: BHP’s Western Australia Iron Ore (WAIO) business enhanced its operational performance, solidifying its position as the world’s lowest-cost, highest-margin major iron ore producer.
- Becoming the World’s Largest Copper Producer: Under his watch, BHP ascended to become the world’s largest producer of copper, with this metal contributing over half of the company’s recent first-half earnings.
Brandon Craig, BHP’s Americas President, will assume the CEO role. He inherits a company well-positioned with a favourable commodity mix for the coming decade, though challenges remain, including the ongoing development of the Jansen project, potential iron ore headwinds, and the persistent Samarco dam liability.
US Airlines Lift Earnings Guidance Amidst Fuel Price Volatility
Historically, significant increases in oil prices have tended to negatively impact airline share prices, as seen with Qantas’s performance during periods of Brent crude oil spikes. The ratio of Qantas’s share price to Brent crude oil prices often falls during these times, suggesting the market anticipates margin compression due to rising fuel costs or a lack of pricing power.
Despite these historical correlations, a fascinating development is emerging from the United States, where several major airlines have recently upgraded their earnings guidance. This suggests a growing confidence in their ability to manage costs and maintain profitability.
- Delta Air Lines: Delta boosted its Q1 revenue growth guidance to high-single digits, up from a previous forecast of up to 7%. The airline reported a 25% year-on-year increase in bookings, with eight of its top 10 sales days in company history occurring in the current quarter.
- American Airlines: American Airlines raised its Q1 revenue growth guidance to over 10%, an increase from the 7-10% range previously projected. The company indicated it is absorbing a fuel cost increase of approximately $400 million but is offsetting this with stronger-than-expected demand across all cabin classes.
- JetBlue: JetBlue lifted its operating revenue guidance to 5-7% growth, a significant improvement from its earlier 0-4% forecast. This upgrade was attributed to strengthening demand and a positive performance across both premium and core cabin segments.
While these airlines have indicated improved revenue outlooks, only Delta has reaffirmed its profit guidance, leaving the net profit implications for American Airlines and JetBlue less clear.
The Refiner Dilemma
Companies like Viva Energy and Ampol, which operate Australia’s only remaining oil refineries (Geelong in Victoria and Lytton in Brisbane), are currently in a unique position. However, the question of why more refineries aren’t being built to address potential diesel shortages highlights the complex economic realities involved.
