The Australian sharemarket has suffered a sharp three-day fall, with the ASX 200 losing more than 300 points and wiping billions of dollars from the value of Australia’s largest listed companies.
Oil moved above US$100 (AU$132) a barrel during Thursday’s session as renewed attacks on tankers and continued disruption through major Middle Eastern shipping routes raised concerns about global supply. Brent crude later settled above US$107, while US West Texas Intermediate finished above US$102.
For Australia, expensive oil quickly becomes more than a problem at the petrol bowser. Higher fuel and transport costs flow through freight, farming, construction, aviation and almost every product that needs to be moved around the country. Businesses then face a difficult choice between absorbing those costs or passing them on to customers who are already dealing with a cost-of-living crisis.
That is why the ASX reaction has been so broad. Almost every sector has traded lower over the past three days, as investors reassess whether inflation could remain higher for longer and force the Reserve Bank to consider further interest rate increases. Banks, miners and technology companies have all come under pressure, showing that the sell-off is not isolated to businesses that use large amounts of fuel.
Data centre connectivity operator Megaport has been the notable exception, emerging as the strongest performer among the ASX 200 companies. However, one standout company does little to change the wider picture of a market that has suddenly become far more cautious.
Gold has also come under some pressure but remains just above its 50-day moving average. That red line is now moving closer to the gold price, creating an important test for the metal over the coming sessions.
If gold holds above the 50-day moving average and begins moving higher, the line may once again act as support and give buyers more confidence. If the price falls clearly below it, however, that could signal short-term weakness and open the door to further downside.
There is no certainty either way, particularly while oil, inflation expectations and interest-rate forecasts are moving so quickly. However, with the Australian sharemarket falling and inflation concerns returning, gold’s ability to remain above this technical level will be closely watched.
Oil is used throughout the economy, even when consumers are not purchasing it directly. Trucks transport food to supermarkets, machinery is used across farms and construction sites, aircraft move passengers and freight, and manufacturers rely on energy and oil-based materials.
When oil becomes more expensive, many of these activities become more costly. A transport company may pay more for diesel, a supermarket may pay more to have products delivered, and a builder may face higher costs for machinery and materials. Eventually, part of that increase can reach consumers through higher prices.
This is why a sustained rise in oil can make inflation more difficult for the RBA to control. Higher interest rates can reduce borrowing and consumer spending, but they cannot produce more oil or reopen disrupted shipping routes. Australians may therefore face the uncomfortable combination of weaker economic activity, falling share prices and continued pressure on household expenses.
This article is general information only and does not constitute financial advice. Precious-metal prices can rise or fall, and past performance is not a reliable indicator of future results. Consider your circumstances and conduct your own research before making any investment decision.
