ASX edges higher as Virgin soars weathering the fuel shock, oil stocks fall

The Australian sharemarket notched up another small gain on Wednesday, following global markets higher, amid hopes the US and Iran will meet for a second round of talks over the coming days to end their war and avoid a worst-case scenario for the global economy.

The S&P/ASX 200 inched up 7.9 points, or 0.1 per cent, to 8978.70, its highest since March 3, having walked back most of its losses since the beginning of the war. The small gain added to its 0.5 per cent advance on Tuesday. The Australian dollar was up 0.2 per cent at US71.39¢ at 4.44pm AEST.

Virgin Australia’s stock jumped 7.2 per cent after the airline said higher fuel costs as a result of the Iran war have largely been “mitigated through effective fuel hedging and recent airfare and capacity adjustments” and left its earnings forecasts unchanged.

Its assurance comes a day after larger rival Qantas flagged an $800 million blow-out in fuel costs linked to the Middle East conflict, which would weigh on profits. Virgin said its exposure to unhedged crude and refining margins will see fuel costs rise by $30 million to $40 million, far less than its rival’s. The airline said it would slightly reduce its flights over coming months to contain costs.

Qantas added 1.2 per cent, more than making up for its drop on Tuesday.

Gold miner Evolution Mining also rallied, closing up 9.6 per cent, after it reported high-margin cash flows in the March quarter thanks to a rise in gold prices. Its rivals Northern Star and Newmont rose 3 per cent and 0.5 per cent, respectively.

Gold held its gains on optimism that the US and Iran were seeking a settlement to the war, easing inflation concerns arising from an energy-supply shock. Bullion was steady near $US4850, having earlier risen as much as 0.6 per cent. That followed an advance of more than 2 per cent in the previous session.

Tech stocks were the biggest gainers of the session as risk-on sentiment returned with the hopes to a resolution of the war. Software maker WiseTech Global climbed 3.6 per cent, Xero rose 2.6 per cent and Technology One gained 2.9 per cent.

Overall market gains were limited though by a weak financial sector, which makes up more than a third of the ASX. The big four banks were all trading lower, with CBA down 0.2 per cent, National Australia Bank down 0.4 per cent and ANZ Bank down 0.6 per cent. Westpac fell 1.9 per cent, extending its 2.6 per cent decline from Tuesday when the nation’s second-largest lender raised its provisions for potential bad loans citing an “expected slowing in economic growth” due to the war.

Energy companies were also lower as oil prices fluctuated, with oil and gas giants Woodside and Santos down 2.4 per cent and 2.9 per cent, respectively, while refiners Ampol and Viva Energy lost 2.4 per cent and 4.5 per cent. Brent Crude traded below $US95 a barrel after losing 4.6 per cent on Tuesday, while West Texas Intermediate was near $US91.

Overnight on Wall Street, US stocks traded near an all-time high. The S&P 500 added 1.2 per cent to its leap from the day before, and is just 0.2 per cent below its record set in January. The Dow Jones Industrial Average rose 0.7 per cent, and the Nasdaq composite climbed 2 per cent.

That followed gains for stock markets worldwide as diplomats worked through back channels to arrange a new round of talks between the United States and Iran. Such prospects also helped lower the price of oil, whose production and transportation has been snarled by the fighting.

Indexes rose across much of Europe and Asia. South Korea’s Kospi jumped 2.7 per cent, and Japan’s Nikkei 225 rose 2.4 per cent for two of the bigger gains.

“It’s not about whether there is progress in the peace talks, it’s about whether we can reasonably hope that there might be progress in the peace talks,” said Steve Sosnick, chief strategist at Interactive Brokers. “Vibes are more powerful than reality.”

Trump said talks could resume “over the next two days” in Pakistan, the New York Post reported. That would build on a marathon yet inconclusive session in Islamabad on Saturday night. In the meantime, the US is pressing ahead with a naval blockade of the Strait of Hormuz to curb the Islamic Republic’s oil exports, as the battle for control of the strategic waterway intensifies.

If talks succeed and the Iran war ends up being only a temporary setback for the global economy, rather than a new normal of very high oil prices and inflation, financial markets can turn their attention back to rising profits for companies and growth for economies.

To be sure, hope has often quickly swung into doubt in financial markets since the war began, which has caused extreme and sudden reversals. Much of the stress has been due to the Strait of Hormuz, a narrow waterway that’s the main avenue for crude oil produced in the Persian Gulf area to reach customers worldwide. Blockages there have kept oil off the global market, which has in turn driven up its price.

Global inflation this year looks set to accelerate to 4.4 per cent from 4.1 per cent in 2025, according to the International Monetary Fund, which had earlier thought inflation would slow to 3.8 per cent.

The IMF on Tuesday also downgraded its forecast for global economic growth to 3.1 per cent this year from the 3.3 per cent it had forecast in January.

On Wall Street, strong profit reports from several companies helped make up for such worries. So much optimism is in the strength of corporate America’s earnings power that analysts have even raised their estimates for S&P 500 profit over the first six months of the year since the end of February, according to Morgan Stanley.

Amazon climbed 3.8 per cent after saying it would buy Globalstar, a mobile satellite services company, for $US90 per share in either cash or Amazon stock. Globalstar jumped 9.7 per cent.