Australian investors have received a huge $88 billion jolt to their wealth as the local share market surged today. The spike comes as oil prices fell on reports of a possible ceasefire in the Middle East, calming fears of a global economic collapse.
Key Highlights
- The ASX 200 jumped 2.4%, about $88 billion to the total value of Australia’s stock market.
- Prices sank 8 per cent and retreated toward $90 a barrel as worries over supply subsided.
- Banking and retail stocks made the largest gains as investors think inflation will drop.
- The Australian dollar also strengthened as the war premium on the US dollar started to dissipate
Record ASX gains as peace hopes spark rally
The Australian share market enjoyed one of its best days of the year as investors scored an $88 billion windfall after early reports of an Iran ceasefire. After weeks of uncertainty and record-high fuel prices, news that the US and Iran are discussing a 45-day halt to fighting has spurred a wave of optimism on Sydney’s trading floor.
The result has been this incredible relief rally, which has reversed nearly all the losses of last week. Every sector of the market closed higher, but the biggest moves were in companies that depend on consumer spending.
Oil Prices Hit New Lows as Supply Woes Fade
A major catalyst for the market’s rally was the steep decline in oil prices. When the ceasefire discussion broke, futures for Brent crude plummeted nearly 8% in just one day. That’s a big turnaround from earlier this week, when prices were threatening to break $150 a barrel. The prospect that the Strait of Hormuz will remain open to shipping has wiped away the panic pricing that has been battering worldwide commerce.
Lower oil prices work for Australia like a big tax cut for the economy. That means that the high cost of transport and manufacturing should start to go down, which is great news for everyone from people buying milk to people delivering packages. Energy stocks such as Woodside and Santos did experience a small fall in their share prices on lower oil prices, but the rest of the market more than compensated for that.
Pushing the Charge: Banks and Retailers
Australia’s Big Four banks were the biggest winners of the day, their share prices up as much as 5%. Financial experts say that, without the spectre of a shock recession looming over the economy, banks can lend more safely with a ceasefire. Retailers such as Wesfarmers (which owns Bunnings and Kmart) and Woolworths also lifted their heads, given that lower fuel prices generally leave more spare cash in the pockets of everyday shoppers.
How much the Iran conflict has been weighing on Australian investors is perhaps best illustrated by this rally. Many had been sitting on the sidelines, too afraid to invest with the threat of war so high, for weeks.
Is the Crisis Finally Over?
Although the $88 billion bonanza is something to celebrate, some experts are cautioning that the market is not fully in the clear just yet. So far, the cease-fire is a proposal for 45 days that still needs the details hammered out, and it would eventually have to transition into a permanent peace deal.
But for now, the mood on the ASX is pure relief. For the millions of Australians with money in super or direct shares, today’s news has been a very welcome shot at saving your balance sheet. So long as the diplomatic talks progress, the peace dividend is set to keep Australia’s economy flowing in the right direction.
FAQs
- What does this mean for my Super?Â
The vast majority of Super funds are largely invested in ASX shares, so when the market jumps $88 billion like it did today, chances are your retirement balance has just increased.
- Petrol prices to drop tomorrow?Â
It does take some time for lower oil prices to work their way through to the pump, but assuming that the ceasefire holds, you should see prices start falling in a week or so.
- What were the best stocks to own?Â
Banks and retailers led the gainers, since they profit most from a stable economy and low inflation.
- What if the cease-fire collapses?Â
If fighting commences the oil price will probably once again soar and the share market will slump as the war fear resurfaces.
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