The numbers speak for themselves: Australia's stock market has shed $200 billion in value over two weeks, with the ASX 200 sliding 6% since the Middle East conflict erupted late February. At 8,617 points on March 13, the benchmark index is now registering its worst fortnight since mid-2022, and the pain is far from over.
The immediate culprit is clear. Oil prices have surged past $100 a barrel—Brent crude at $100.62, up 9.45%, and West Texas crude at $95.61, up 9.6%. Supply fears from the Strait of Hormuz have spooked investors worldwide, and Australia is not insulated from the fallout. Higher fuel costs stoke inflation worries, and inflation worries mean one thing for investors bracing themselves: the Reserve Bank will hike rates harder and faster than they'd hoped.
For investors, the signal is clear. Markets have now priced in a 78% probability that the RBA will raise rates by 0.25% at its March 17 meeting, with a second hike expected in May. That's a sharp reversal from last year's three rate cuts. The consensus among Australia's four major banks is a terminal rate of 4.35% by May, up from the current 3.85%. Every 0.25% rise compounds the pain for investors holding equities and property.
Strip away the buzz and the sectoral results show how uneven the damage is becoming. Materials stocks—dominated by miners and gold producers—lost 3% outright. Northern Star Resources, the Kalgoorlie gold miner, became the poster child for the rout. Already reeling from a January production guidance cut, the company issued a second downgrade on March 13, slashing full-year output to "above 1.5 million ounces" from an earlier 1.6 to 1.7 million ounce target. The market response was brutal: the stock plunged 18.8%, erasing $6 billion in market capitalisation in one session.
Energy stocks, by contrast, showed the mixed signals that characterise resource-heavy markets. Santos and Ampol—both integrated energy players—actually rallied on higher oil prices, up 0.5% and 1.9% respectively. Yet even their gains couldn't offset the broader selloff. BHP, the diversified resources giant, fell 1.7% as China widened its iron ore ban, adding another layer of pressure to the mining complex.
What the market hasn't priced in yet is how much further equities could fall if the RBA does move on Tuesday. Higher rates don't just squeeze corporate earnings; they directly crimp property valuations by lifting discount rates on future cash flows. Australian investors hold nearly half their wealth in residential property. A rate hike environment turns that into a headwind.
Tuesday's RBA decision will either confirm market fears or offer relief. For now, the ASX is caught between a rock and a hard place: external shock from the Middle East colliding with domestic tightening at precisely the wrong moment. The smart money is moving toward defensive positioning until that decision settles one of the two unknowns.