Australian shares fell sharply on Friday as crude prices climbed to their highest level since May, with the continuing war between the United States and Iran raising fresh concerns about global energy supplies and inflation.
The S&P/ASX 200 dropped 91.1 points, or 1 per cent, to 8,728.3 in early trading, after losing a similar amount on Thursday. The Australian dollar slipped to US71.56 cents.
The falls followed another weak session on Wall Street, where the S&P 500 declined for a fourth consecutive day. The index fell 0.6 per cent, while the Dow Jones Industrial Average lost 316 points and the technology-heavy Nasdaq fell 0.7 per cent.
Brent crude, the international benchmark, briefly rose above US$108 a barrel after gaining 6.3 per cent before settling at US$107.63. Prices have risen sharply from below US$72 in early July as hopes fade that the conflict will end soon enough to allow oil shipments from the Middle East to return to normal.
The increase has pushed the average price of regular petrol in the United States to nearly US$4.28 a gallon, according to the American Automobile Association. That is almost 34 per cent higher than a year ago and threatens to feed through into the cost of goods transported by road.
Oil prices heighten interest-rate concerns
Investors are also reacting to signs that higher energy costs are keeping inflation elevated. US wholesale inflation accelerated to 5.4 per cent last month, from 4.8 per cent in July, while fresh figures on consumer prices were due later on Friday.
The prospect of persistent inflation has increased pressure on the US Federal Reserve ahead of its meeting on September 15 and 16. Traders were pricing in about a 73 per cent chance of an increase in the federal funds rate, up from roughly 61 per cent a day earlier.
The Fed’s benchmark rate is currently set in a range of 3.5 to 3.75 per cent. Higher borrowing costs could restrain demand and investment, but would also put further pressure on households, businesses and financial markets.
Bond yields rose alongside oil. The yield on the 10-year US Treasury climbed to 4.95 per cent, from 4.83 per cent late on Wednesday and well above the 3.97 per cent level recorded before the war began.
Rising yields can make bonds more attractive relative to shares, particularly expensive growth stocks, while also increasing the cost of mortgages. US housebuilders Lennar and D.R. Horton fell 3.5 per cent and 2.4 per cent respectively after data showed long-term mortgage rates had reached their highest level in more than 14 months and sales of previously owned homes had weakened.
The European Central Bank raised its key interest rates by a quarter of a percentage point on Thursday, citing inflationary pressure from the conflict in the Middle East. It forecast eurozone inflation would average 3 per cent in 2026, remaining above its 2 per cent target through 2028.
Elsewhere, Macy’s fell 4.7 per cent despite reporting better-than-expected quarterly revenue and profit. The retailer said it had received US$116 million in tariff refunds and warned that wider economic and geopolitical conditions could affect consumer spending.
Markets across Europe and Asia also moved lower, with Hong Kong’s Hang Seng index dropping 1.3 per cent. On Wall Street, the S&P 500 finished down 44.66 points at 7,591.70, the Dow fell 316.56 points to 52,064.10 and the Nasdaq composite lost 171.62 points to 26,081.72.
