Five months of gains on Australia’s sharemarket came to an abrupt end on Tuesday as renewed US-Iran clashes in the Strait of Hormuz sent oil prices higher and revived fears of further interest rate rises.
The benchmark S&P/ASX 200 finished 0.1 per cent lower at 9,066 points, after falling as much as 0.5 per cent in early trading. The index is now 2.5 per cent below its 52-week high.
US forces struck Iranian rocket launchers on Sunday after they were reportedly observed preparing to fire rockets and lay sea mines in the strategic waterway. Iran later launched missiles at US bases in Jordan, according to the Associated Press.
The fighting heightened concerns about disruption to commercial shipping and energy supplies through the Strait of Hormuz, a crucial route for global oil exports. Brent crude rose above US$90 a barrel, while oil prices remained around US$91.35 by the end of the Australian trading session.
Energy stocks were among the few beneficiaries, with the sector rising 1.2 per cent. Materials gained 0.6 per cent, helped by advances in major miners, while healthcare stocks also moved higher.
The pressure was concentrated in more economically sensitive parts of the market. Consumer cyclical stocks fell 1.7 per cent and technology shares declined 1.4 per cent, as investors assessed the effect of higher fuel costs and borrowing expenses on businesses and households.
Rising oil prices have added to inflation concerns and strengthened expectations that the Reserve Bank of Australia may need to tighten monetary policy again. Australian government bond yields also climbed, with the 10-year yield reaching 5.16 per cent, its highest level since April 2011.
Market analysts said the prospect of further exchanges of fire between the US and Iran could keep upward pressure on crude prices in the short term, while leaving investors wary of a renewed inflation shock.
The Australian dollar was little changed at about 71.67 US cents as traders awaited fresh economic data, including quarterly growth figures that could provide further clues about the Reserve Bank’s next move.
