To The Moon

The Australian sharemarket erased more than $60 billion from its market capitalisation on Wednesday as fears of a widening Middle East war roiled equity markets around the world as a soaring oil price raised inflation fears.

The S&P/ASX 200 plunged 176.10 points, or by 1.9%, to 8901.20, erasing $63 billion from the market capitalisation as traders pivoted away from risk assets in the benchmark’s second-biggest drop since April. Selling accelerated across Asia, with South Korea’s benchmark falling as much as 10% as investors rushed to pull money from one of the world’s hottest sharemarkets.

Higher oil prices and the impact on inflation is a central fear for investors, with bond traders dialling back US rate cut bets. Further spike in the oil price may grind down the global economy and sap corporate profits.

“Markets are recognising the Iran conflict could be drawn out and more disruptive to the world economy than initially thought,” Moomoo Australia dealing manager Paco Chow said.

Adding to rising inflation fears in Australia was GDP data that showed the economy expanded more than economists’ forecasts at 2.6% in the fourth quarter. Money markets are now pricing in a 33% chance of a second rate increase from the Reserve Bank later this month.

On the ASX, all 11 industry groups trading in the red, led by materials, banks and the rate sensitive property sector. Gold added 1.5% $US5164, recovering from heavy falls as markets repriced interest rate bets. This dragged Newmont down 6.3% to $171.86 Westgold Resources 7.1% to $7.41, and West African Resources by 7.4% to $3.26.

Iron ore giants were also sold as the price of the steelmaking ingredient extended its decline below $US100 a tonne in Singapore. BHP fell 3.5% to $55.68, Fortescue 3% to $19 and Rio Tinto 1.6% to $162.70.

Even the energy sector was weaker as the market took profits after recent gains and the US said it would escort oil tankers through the Strait of Hormuz to ease fears of a supply disruption.

Oil was still up 0.6% to $US81.85 after spiking earlier in the session. Woodside edged up 0.9% to $30.75 while Santos dropped 0.4% to $7.25. Profit-taking also hit the uranium producers, with Paladin Energy off 7.6% to $12.58, while Whitehaven Coal firmed 1.8% to $8.34 after coal prices jumped 7.3% as the market looks to fill an LNG shortfall.

“Markets are now [weighing] one key question: can US President Donald Trump’s pledge to secure trade through the Strait of Hormuz actually hold in practice? Investors will be looking for visible US tanker escorts and other proof shipping can move safely,” said Chow.

Investors jitters hit the banking sector with the big four banks all down by more than 1%. Commonwealth Bank lost 1.2% to $171.91 and ANZ by 3.7% to $37.94. And real estate stocks hit the skids in the face of higher rates. Goodman Group tumbled 3.7% to $27.14 and Scentre Group by 2.4% to $3.69.

In corporate news, ARN Media rose 4.4% to 36¢ after The Kyle and Jackie O Show was pulled off the air, with Jackie “O” Henderson telling the company she could no longer work with her co-host, Kyle Sandilands. The development cast doubt on their $200 million contract.

Endeavour Group dropped 3.5% to $3.84 as the company reported a 17% drop in net profit for the half year to $298 million. It also declared an interim dividend of 10.8¢ that was lower than market expectations.

Treasury Wine Estates lost 6% to $4.24 as the business announced its chief financial and strategy officer, Stuart Boxer, would retire effective September 30.

AUB slid 2.6% to $23.29 as it completed its share purchase plan, raising approximately $10.6 million following its $400 million institutional placement announced in January.