ASX 200 Claws Back Early Losses as Energy Stocks Rally on US$115 Oil and Rate Hike Fears Weigh on Banks

SYDNEY — Australian shares recovered from early losses Monday afternoon. Energy and mining stocks rallied on high oil prices, offsetting weakness in banks and retailers as investors braced for a possible interest rate hike next week.

The benchmark S&P/ASX 200 index was up 11.6 points, or 0.13%, at 8,806.8 at 2:22 p.m. AEDT. The index had fallen as much as 0.8% shortly after the open, tracking losses on Wall Street, before buyers stepped in. It closed Friday at 8,795.2, up just 2 points for the day.

Energy leads the way

Energy companies were among the strongest performers after oil prices hit a six-month high on Friday amid escalating tensions in the Middle East.

Santos rose almost 2%, and fuel refiner Viva Energy climbed more than 4%. Uranium producers gained 4% to 5%, and Lotus Energy jumped more than 16%.

Lithium developer Vulcan Energy was among the top gainers, rising 6.3% in morning trade.

Miners also helped lift the market. BHP rose 1.1%, while Rio Tinto slipped 0.2%. Steelmaker BlueScope gained 2.8% to 33.26 Australian dollars.

Brent crude rose 3.1% to US$116.72 a barrel on Friday, and U.S. benchmark West Texas Intermediate climbed 3.8% to US$103.27. Both eased in Asian trading Monday. Brent was down about 1% at US$115.47, and WTI fell 1.4% to US$101.75.

Oil prices have surged this month as attacks on shipping in the Strait of Hormuz reached a record high, disrupting one of the world's most important oil routes.

Banks and retailers slip

The big four banks dragged on the index, falling 1% to 2% each in early trade before trimming losses to about 0.4% by early afternoon.

Consumer stocks also weakened. Woolworths fell 2% and Wesfarmers dropped 1.5%, as investors weighed the impact of higher fuel costs and rising interest rates on household spending.

Data center operator NEXTDC was among the worst performers, falling 3.6% after cutting its financial guidance.

"We recognise and share the disappointment of investors resulting from our revised financial year 2027 guidance," NEXTDC chair Douglas Flynn said.

Shares in Tuas plunged as much as 40% to 1.09 Australian dollars.

Rate hike bets climb

Traders are increasingly betting that the Reserve Bank of Australia will raise interest rates again at its meeting next Tuesday, which falls on Melbourne Cup Day.

Markets put the chance of a hike above 60%, according to ABC News, and a hike is fully priced in by February. The RBA's cash rate stands at 4.60%, its highest level since 2011, after a quarter-point increase in September.

RBA chief economist Sarah Hunter said Monday that government spending was contributing to inflation pressures.

"Government spending is definitely part of the picture," Hunter said.

Asked whether the central bank was close to bringing inflation under control, she said: "It's tricky. It is hard. Unfortunately, not quite yet." She said the bank wanted to "make sure it doesn't become embedded."

Investors will get a key reading on Wednesday, when the Australian Bureau of Statistics releases third-quarter consumer price index data. Economists expect prices to rise 1.3% over the quarter, with annual inflation holding at 3.9%.

A strong result could all but cement a November rate hike, which would weigh further on banks, property stocks and consumer-facing companies.

Gold slips below $4,000

Gold was flat at about US$3,996 an ounce in Asian trading after falling below US$4,000 on Friday for the first time since July. It was the precious metal's lowest level in three months.

Higher oil prices have fueled inflation concerns and raised expectations that major central banks may keep interest rates high or raise them further, reducing the appeal of non-yielding gold.

"Heightened inflation concerns suggest that major central banks of the world won't be able to ease," said Jim Wyckoff, an analyst at American Gold Exchange.

Weaker gold prices could weigh on Australian producers such as Northern Star Resources and Capricorn Metals.

Wall Street and currency

U.S. stocks fell on Friday. The Dow Jones Industrial Average dropped 1.2%, the S&P 500 lost 0.5% and the Nasdaq composite slipped 0.2%. Concerns about AI-related spending and rising oil prices have weighed on global markets in recent weeks.

The Australian dollar was flat at 70.31 U.S. cents.

Company news

Several companies are holding annual general meetings Monday, including hearing aid maker Cochlear and furniture retailer Nick Scali. Investors are watching for trading updates.

Separately, the Australian Competition and Consumer Commission took action over alleged cartel conduct.

"Cartel conduct undermines competition and can increase prices, harming consumers," ACCC Commissioner Luke Woodward said.

What's ahead

Beyond Wednesday's inflation data, investors will monitor developments in the Middle East and their impact on oil prices, as well as next week's RBA decision.

Earnings reports from major U.S. technology companies this week could also set the tone for global markets, as investors look for reassurance about spending on artificial intelligence.