Shares of National Australia Bank Ltd. retreated on Thursday, closing at A$46.40, a decline of approximately 2% from the previous session's finish at A$47.32. The drop occurred amid a broader market downturn, with the S&P/ASX 200 index falling 1.3% and the financials sector slipping 1.5%.
Oil Price Shock Rattles Markets
The primary catalyst for the selloff was a sharp rise in oil prices, with Brent crude futures climbing to $100.46 per barrel, their highest level since August 2022. This surge was driven by fresh supply concerns following attacks on fuel tankers in Iraqi waters, stoking fears over stability in the Middle East. Analysts noted that the jump in energy costs has revived anxieties about persistent inflation, a key concern for central banks globally.
RBA Rate Hike Bets Intensify
In response to the inflationary pressures signaled by higher oil, financial markets rapidly adjusted their expectations for monetary policy. Pricing now indicates a 75% probability of a 25-basis-point interest rate increase from the Reserve Bank of Australia at its meeting next week. This shift aligns with a revised outlook from NAB's own economics team, which on Wednesday projected rate hikes for both March and May, targeting a cash rate of 4.35%.
Commonwealth Bank economist Belinda Allen observed that "the balance of probabilities has shifted," supporting the view that hikes are now on the table for the coming months. The RBA, however, has not pre-committed. Deputy Governor Andrew Hauser emphasized that a "genuine" policy debate is scheduled, acknowledging that while inflation remains "too high," policymakers are also weighing arguments related to potentially weaker economic growth.
Strong Earnings Overshadowed by Macro Fears
The decline in NAB's stock price is notable given the bank's recently reported robust financial performance. Last month, NAB announced a 16% year-over-year increase in first-quarter cash earnings to A$2.02 billion. This update had previously buoyed the share price to near-record levels, peaking at A$47.96 on February 18. Since that peak, the stock has shed roughly 3%.
NAB's results were part of a strong reporting season for Australia's major banks. Westpac exceeded profit forecasts, ANZ posted a jump in cash profit, and Commonwealth Bank delivered record first-half numbers. Following NAB's update, CEO Andrew Irvine stated the bank was "well placed" for sustainable growth, though analysts at Citi flagged the bank's capital buffer (CET1 ratio) as a concern.
Market Analysts Weigh the Path Forward
The immediate future appears contingent on geopolitical and commodity market developments. Tim Waterer, chief market analyst at KCM Trade, suggested that risk aversion is likely to persist unless there is a diplomatic breakthrough regarding tensions in the Strait of Hormuz, as the oil price surge keeps inflation fears alive.
Phil O'Donaghoe, Deutsche Bank's chief economist, leans toward a rate hike as his base case but cautioned that "an amplification of the conflict" in the Middle East could force the RBA to pause. The trajectory for bank shares hinges on these dynamics; a retreat in oil prices could alleviate pressure, while a further supply shock would keep inflation worries at the forefront.
As trading concluded on Thursday, NAB shares remained below their recent high, demonstrating how concerns over oil, inflation, and imminent central bank decisions have quickly eclipsed what had been a positive narrative surrounding bank earnings.
