ASX Dives as Middle East Tensions Fuel Inflation Fears
The Australian share market experienced a significant downturn, with the S&P/ASX 200 index closing down 142.8 points, or 1.65%. This sharp decline was largely driven by escalating attacks on energy infrastructure in the Middle East, which sent oil prices soaring. The surge in crude oil has intensified concerns about a prolonged inflation shock and the potential for further interest rate hikes by central banks.
Rising energy costs, coupled with a strengthening US dollar, triggered widespread selling across commodities and growth-oriented sectors. Investors sought refuge in more defensive assets, leaving the energy sector and consumer staples as the primary beneficiaries of the market turmoil.
Key Market Movements
The S&P/ASX 200 index finished the trading day at 8,497.8, a notable drop of 1.65% from its opening. Market breadth was decidedly negative, with significantly more declining stocks than advancing ones across the broader S&P/ASX 300 index.
- Energy Sector Soars: The energy sector was the standout performer, surging by 5.08% as Brent crude oil prices breached the US$110 per barrel mark. This spike was a direct response to increasing disruptions in Middle Eastern energy supplies and direct attacks on critical infrastructure, fuelling expectations of ongoing supply chain volatility.
Defensive Sectors Offer Solace: In contrast to the broader market sell-off, consumer staples and utilities managed to eke out gains.
- Consumer Staples: This sector rose by 0.91%, as investors rotated into more defensive areas of the market amidst heightened macro-economic uncertainty. Companies like Woolworths Group (WOW) and Coles Group (COL) were key contributors, as supermarkets typically experience stable demand irrespective of economic conditions.
- Utilities: The utilities sector saw a modest increase of 0.36%. This segment of the market is often considered defensive as essential services like electricity remain in demand regardless of rising costs or interest rates. APA Group (APA) was a notable mover within this sector.
Commodities and Growth Sectors Suffer:
- Gold Sub-Index Plummets: The gold sub-index experienced a significant collapse, falling by 9.2%. Investors liquidated recent gains in precious metals to cover losses elsewhere, a trend exacerbated by falling bullion prices driven by the stronger US dollar. Companies like Genesis Minerals (GMD) and Ramelius Resources (RMS) saw substantial declines.
- Materials Sector Weakens: The broader materials sector slumped by 3.3%, reflecting growing anxieties that higher oil prices and interest rates will dampen global growth and, consequently, commodity demand. Base metals also experienced sharp declines overnight, further contributing to the negative sentiment. PLS Group (PLS) and Sandfire Resources (SFR) were among the hardest-hit.
- Information Technology Under Pressure: The information technology sector declined by 2.98%. Rising yields and a general risk-off sentiment continued to weigh on high-growth technology stocks, with WiseTech Global (WTC) leading the losses as investors moved away from long-duration assets.
Stock-Specific Highlights
While the broader market faced headwinds, several individual stocks experienced significant price movements.
- Woodside Energy Group (WDS) was a notable gainer, surging by 7.2%. The company’s share price was boosted by the spike in oil prices and the appointment of former Anglo American CEO Mark Cutifani to its board.
- Viva Energy Group (VEA) also saw a substantial rise of 15.2%, reflecting the broader strength in the energy sector.
- Ampol (ALD) and Santos (STO), both major energy players, also recorded gains of 4.6% and 3.2% respectively, benefiting from the surge in oil prices.
- In contrast, Boss Energy (BOE) saw its shares decline by 6.8% despite providing an update on its uranium resources at the Gould’s Dam and Jason’s deposits.
- Lynas Rare Earths (LYC) fell 2.7% even after announcing the commencement of production for samarium oxide, an expansion of its heavy rare earths product offerings.
- Orora (ORA) slipped by 2.5% following the announcement of a new chief financial officer.
Economic Data and Outlook
The latest Australian employment figures provided a mixed picture. While the headline job creation number for February exceeded forecasts, with an increase of 48,900 jobs compared to a forecast of 20,300, a closer look revealed a decline in full-time employment (-30,500) and a surge in part-time employment (+79,400). This could indicate employers are adopting more flexible hiring strategies, and a rise in the number of unemployed people by 35,000, alongside an unemployment rate that ticked up to 4.3% from a forecast of 4.1%, suggests underlying economic caution.
Looking ahead, market participants will be closely watching economic data releases from Europe and China, including interest rate decisions from the European Central Bank and the People’s Bank of China.
ChartWatch Analysis
Technical analysis of the Nasdaq Composite and the S&P/ASX 200 suggests a prevailing downward trend.
- Nasdaq Composite: The chart analysis indicates a lack of surprises, with a consistent pattern observed over recent trading sessions. The “long suffering readers” of ChartWatch are familiar with the established technical model, which points towards a continued downward trajectory for the index. Key levels to watch include a critical demand zone at 21898, with a close below this level suggesting significant pressure on the long-term uptrend. The short-term downtrend ribbon is located at 22604-22748.
- S&P/ASX 200: The analysis for the ASX 200 reinforces a cautious outlook, with a risk management strategy favouring a reduced risk position (1/3RP). Since its all-time high on March 2nd, the number of stocks in the “Uptrend Watchlist” has dwindled, while the “Downtrend Watchlist” has grown substantially. The current trend indicates a potential start to a long-term downtrend, with the index needing to close above key resistance levels to regain demand-side control. The 8383-8457 demand zone remains a critical area to monitor.
Notable Broker Moves
Several broker recommendations were updated, reflecting varying analyst sentiment towards specific stocks.
- Sims (SGM) saw a flurry of activity, with upgrades to “outperform” from “hold” by CLSA and UBS, a move to “hold” from “sell” by Ord Minnett, and a downgrade to “underperform” by Jefferies.
- Woodside Energy Group (WDS) received a downgrade to “neutral” from “positive” by E&P and was retained at “neutral” by Macquarie, despite its strong intraday performance.
- Viva Energy Group (VEA) was reiterated as a “buy” by Ord Minnett, with an increased price target.
Scan Results
- Top Gainers: Conneqt Health Ltd (CQT) led the pack with a 28.57% increase, followed by Racura Oncology Ltd (RAC) and MC Mining Ltd (MCM).
- Top Fallers: Bentley Capital Ltd (BEL) experienced the sharpest decline, down 30.44%, with Antilles Gold Ltd (AAU) and Lithium Plus Minerals Ltd (LPM) also seeing significant drops.
- 52 Week Highs: Viva Energy Group Ltd (VEA) and Woodside Energy Group Ltd (WDS) were among the companies hitting new 52-week highs, underscoring the strength in the energy sector.
- 52 Week Lows: TZ Ltd (TZL) and Far East Gold Ltd (FEG) were among those trading at their 52-week lows.
