ASX 200 ends flat as Red Sea conflict escalates, driving up oil prices

The local sharemarket has finished Friday and the week flat, as global investors turned cautious as tensions in the Middle East heightened.

Following a hotter than expected inflation update, US investors are now bracing for earnings season revelations, which could set the tone for the ASX as well. Picture: Dylan Coker

The sharemarket ended the week flat as an escalating conflict in the Red Sea sent oil prices higher and left global investors feeling cautious.

The benchmark S&P/ASX 200 Index edged down just 0.1 per cent to 7498.30 points at the close, finishing the week virtually unchanged.

The broader All Ordinaries Index was also flat, down only 0.08 per cent at 7730.50 points.

The energy sector helped support the bourse as oil prices climbed after the US and UK launched strikes on Iran-backed Houthis in Yemen, which had for weeks been attacking ships in the Red Sea.

Capital.com senior financial market analyst Kyle Rodda said geopolitical risks were re-emerging as a major swing factor in markets as tensions in the Middle East heightened further.

But he said the impact on the Australian and Asian stockmarkets was muted so far, with the timing and pace of US interest rate cuts being the heaviest weight on the ASX 200 this week and on Friday.

Mr Rodda said Friday’s Red Sea developments supported the ASX 200 on balance on Friday, because the oil price rise led to energy stocks performing reasonably well.

“Overall if we zoom out from the uncertainties surrounding the conflict there, we had a reasonably weak Wall Street lead and we’re starting the new year with the markets questioning the pace and timing of US rate cuts,” he said.

“It could be slightly surprising that, at least in Asian trade so far, we’ve only seen sort of a modest risk-off tone coming from the events, especially given the heated rhetoric and the heightened risk of a broader conflict in the region.”

Wall Street closed flat due to choppy trading following hotter-than-expected US inflation data, with annual headline inflation edging up to 3.4 per cent. However, markets still expect the US Federal Reserve to cut interest rates in March.

AMP chief economist Shane Oliver said investors were worried about the Middle East developments, particularly if there was a continuing escalation.

Dr Oliver said the main concern was if Iran, which supplies about 3 per cent of global oil production, was drawn directly into the conflict.

“The risk would be if there’s a continuing escalation. If it’s just a one-off strike and the Houthi rebels back off and ships can resume safe passage through the Red Sea and Suez Canal then it will all be forgotten about.

“But if that’s not the case and Iran gets drawn in then it’s a different story and it becomes more threatening.”

Dr Oliver noted that despite Friday’s strikes on Houthi rebels, US S&P 500 stock futures were only down about 0.1 per cent.

At 5pm AEDT, West Texas Intermediate crude oil futures were up 2.2 per cent to $US73.56 a barrel while Brent crude was up just over 2 per cent at $US79.

The oil price gains boosted the energy sector, with Woodside up 0.5 per cent to $31.29 and Santos rising 1.5 per cent to $7.55.

The heavyweight mining sector also ended in the green, despite BHP dropping 0.2 per cent to $47.71.

Fortescue gained 1.2 per cent to $27.37 and Rio Tinto lifted 0.6 per cent to $129.15.

Most sectors on the ASX 200 were lower, led by utilities and consumer staples.

Among heavyweight financial stocks, Commonwealth Bank hit a fresh record high of $113.80, before ending flat – up just 0.03 per cent at $113.63.

NAB and Westpac both fell 0.2 per cent, to $30.91 and $23.19, respectively, while ANZ was down 0.6 per cent at $25.90.

Biotech giant CSL’s 0.3 per cent decline to $290.40 and supermarket chain Woolworths’ 1.5 per cent drop to $36.22 also weighed on the market, while utilities giant AGL dropped 2.2 per cent to $9.05.

Software small-cap Nuix tumbled almost 13 per cent to $1.83 after warning legal costs would cut its first-half earnings by up to 19 per cent to $17m.

The dollar lifted slightly to US67c by 5pm, up 0.2 per cent.

Originally published as ASX 200 ends flat as Red Sea conflict escalates, driving up oil prices