Australian Market Set for Weekly Loss Despite Energy Stock Gains from Oil Price Surge

Key Points:

• Australian shares fell 1.1% on Friday, setting the market up for a weekly loss amid Middle East conflict concerns.
• The ASX 200 index hit a record high on Monday but reversed gains due to dampened rate-cut hopes and geopolitical tensions.
• Energy stocks surged nearly 2% due to rising oil prices, with Woodside Energy and Santos leading the sector.
• Miners and financials led the decline, with the mining sub-index down 2.2% as copper prices fell.
• Investors await U.S. payroll data and Reserve Bank of New Zealand’s anticipated rate cut next week.

Australian shares fell on Friday, as the escalating conflict in the Middle East unsettled global markets and soured investor sentiment. The S&P/ASX 200 index dropped by 1.1% to 8,117.1 by mid-morning and was on track to lose more than 1% for the week. This marks the biggest weekly decline for the Australian market since early August. The sudden downturn followed a strong start to the week, with the benchmark index reaching a record high of 8,285.7 on Monday, buoyed by gains in mining stocks after China announced a series of stimulus measures to support its economy.

However, the optimism surrounding China’s economic support measures was short-lived as stronger-than-expected retail sales data dampened hopes for a rate cut. Adding to the downward pressure on the market were mounting geopolitical tensions in the Middle East. Overnight, Israeli forces bombed Beirut, escalating tensions with Iran-backed Hezbollah, while U.S. President Joe Biden indicated that the United States was considering strikes on Iran’s oil facilities. These developments heightened fears of a broader regional conflict, which could disrupt global oil supplies.

As a result, oil prices surged, with Brent crude futures rising by 5% overnight. This drove up local energy stocks in Australia, with the energy sub-index (INDEXASX:XEJ) gaining nearly 2% by Friday morning. The sector was on track to post its fourth consecutive weekly rise, making it one of the few bright spots in an otherwise declining market. Heavyweights Woodside Energy and Santos benefited from the rising oil prices, with their shares gaining 2% and 1.6%, respectively. Investors turned to these stocks as the threat of supply disruptions in global crude markets became more pronounced.

Despite the energy sector’s positive performance, all other sectors were in negative territory. Mining stocks led the market’s decline, with the mining sub-index (.AXMM) falling by 2.2%. The drop was largely due to copper prices retreating overnight, marking the sub-index’s biggest weekly fall in a month. Copper, a key industrial metal, is closely tied to global economic growth, and its price movement often reflects broader market sentiment. As concerns over the global economy grew, mining stocks took a hit.

The financial sector also contributed to the overall market weakness. The financials sub-index (INDEXASX:XFJ) slipped by 1.2%, with the “Big Four” banks—Commonwealth Bank (ASX:CBA), Westpac (ASX:WBC), ANZ (ASX:ANZ), and NAB (ASX:NAB)—seeing declines ranging from 0.6% to 1.3%. These losses reflect the broader risk-off sentiment among investors, who are becoming increasingly cautious as geopolitical risks rise and the outlook for interest rate cuts dims.

The Australian market’s performance mirrored overnight declines in U.S. stock markets. The Dow Jones Industrial Average fell by 0.44%, the S&P 500 lost 0.17%, and the Nasdaq slipped 0.04%. These U.S. indices were pressured by growing concerns about global geopolitical instability and uncertainty surrounding the U.S. Federal Reserve’s next move on interest rates. Investors are now anxiously awaiting the U.S. nonfarm payroll data, due to be released later in the day, which could provide clues about whether the Federal Reserve will move forward with an anticipated interest rate cut next month.

Elsewhere in the region, New Zealand’s benchmark S&P/NZX 50 index fell by 0.3% to 12,237.7, reflecting similar concerns about global market conditions. The Reserve Bank of New Zealand is widely expected to cut its key interest rate by 50 basis points to 4.75% at its next meeting, according to a Reuters poll. This move is aimed at supporting the New Zealand economy as it faces slowing growth and heightened global uncertainty.