Weekly Wrap: Middle East Ceasefire Drives Down Oil and Gold Prices
Some much-needed peace in the Middle East led to weakness in oil and gold prices, while BHP’s China dispute also saw shares in big miners fall.
By the close on Friday the risk-off sentiment had pushed the ASX 200 index down 11.5 points, or 0.1%, to 8958.3 points even though eight of the 11 sectors remained positive.
It was oil, gold and mining stocks that dragged the rest of the market lower as oil prices fell to as little as $US62 a barrel in the wake of a ceasefire deal in Gaza.
Risk premium for Oil Supply Falling
With Hamas agreeing to release all of the hostages it holds, the end of the two-year war that has threatened to interrupt oil flows from the Middle East is now a diminished threat, allowing oil prices to reduce their risk premium.
Gold stocks were the other big contributor to the fall, as their record run finally ran out of steam, with the gold price falling.
Among the energy stocks to feel some pain was shares in Australian sector leader Woodside (ASX: WDS), which fell 1.2% $22.55.
Others to join the weakening trend included Beach Energy (ASX: BPT) which dropped 2.6% to $1.13, while Santos (ASX: STO) fell 0.5% to $6.58.
Gold Shares Reverse
The damage for gold stocks was even more severe with the 0.6% fall in the gold price to $US3,955 an ounce sending many into a sharp reversal after a very long and solid price run up.
Newmont (ASX: NEM) fell 2.9% to $129.25.
Also hit was Northern Star (ASX: NST) down 2.1% to $24.05 and Ramelius (ASX: RMS) down 5.5% to $3.82.
Other gold names to be hit included Regis (ASX: RRL) down 5.5% to $5.69, Genesis (ASX: GMD) down 5.7% to $5.85, Alkane (ASX: ALK) down 7.3% to $1.07, Vault (ASX: VAU) down 4.9% to 68¢, Westgold (ASX: WGX) down 3.3% to $5.32, Perseus (ASX: PRU) down 4.4% to $4.73, and Greatland (ASX: GGP) down 2.7% to $8.08.
China dispute worsens for miners
It was a tough day for the big iron ore miners too after reports that the price dispute between BHP and China’s state-run iron ore buyer is ongoing and the stalemate might not be broken until next year.
BHP (ASX: BHP) fell 2.1% to $42.22 while Pilbara stablemate Rio Tinto (ASX: RIO) saw its shares fall 1.7% to $125.15 and Fortescue (ASX: FMG) fell 1.5% to $19.16.
The incredible run in silver prices also faltered after the precious metal hit an impressive $US51.24 an ounce on Thursday, falling 0.6% on Friday and taking the share prices of silver miners down with it.
Unico Silver (ASX: USL) fell 3.3% to 59¢ while Sun Silver (ASX: SS1) lost 5.1% to $1.02.
Lithium hit too
It was a weaker day for lithium miners too with Pilbara Minerals (ASX: PLS) down 1.5% to $2.64, Liontown (ASX: LTR) falling 3.8% to $1, and IGO (ASX: IGO) down 2.6% to $5.36.
Shares in Mineral Resources (ASX: MIN) also fell 1.2% to $44.14 after founder Chris Ellison lost one of his key boardroom backers after Zimi Meka joined a continuing exodus of directors.
The company has appointed Susan Ferrier and Colin Moorhead as new independent, non-executive directors.
Broader market positive
The market weakness was far from being across the board with the big banks all firmer and the technology shares following on from a 1.8% rally in the price of chipmaker Nvidia with rallies of their own.
Some of the stronger performers included Life360 (ASX: 360) up 1.4% to $54.38, accounting software company Xero (ASX: XRO) up 1.2% to $156.15, TechnologyOne (ASX: TNE) up 2.4% to $39.77 and Codan (ASX: CDA), up 1.8% to $33.24.
Following on from the merger with Platinum, shares in fund manager L1 Group (ASX: L1G) soared 16.2% to $1.04 after more positive broking reports.
That means the stocks has soared more than 50% in a week, with some brokers even tipping it could double again.
Not so fortunate were shareholders in taco vendor Guzman y Gomez (ASX: GYG) as the shares fell 2.7% to $25.69 after shareholders were not impressed by a plan to return up to $100 million to shareholders through an on-market buyback.
There is some scepticism about the company’s plans for a global rollout and no shortage of mystery about why it is returning money to shareholders after the shares have fallen by about a third over the past year.
The Week Ahead:
The Australian job market faces a big test this week with the release of the jobs numbers on Thursday, which is expected to show the economy added around 30,000 new jobs.
The local reserve bank is also having a big week with a range of speeches from Governor Bullock in Washington and also from Assistant Governors Sarah Hunter and Christopher Kent.
With the RBA’s board minutes out on Tuesday adding some detail to the decision to hold the cash rate at 3.6% in September.
US inflation watch
The other big news of the week will be the release of potentially higher US inflation numbers on Wednesday which will directly feed into the US Federal Reserve’s meeting at the end of October.
With President Donald Trump insisting rates should fall, and the US Fed showing a lot of caution about rising prices, this is one battle that is ongoing.