Why did the ASX 200 just plunge 1.4% in Thursday afternoon trade?

The S&P/ASX 200 Index (ASX: XJO) looked like it was set to end the shortened holiday trading week on a positive note.

Just before noon today, the benchmark Aussie index was up a solid 0.6%.

But if you were watching the charts, you’ll know things turned sharply south from there.

At the time of writing in early afternoon trade on Thursday, the ASX 200 stands at 8,594 points, down 0.9% for the day and down 1.4% in just 90 minutes.

Here’s what’s got investors spooked in mid-day trade today.

ASX 200 dives on renewed Iran war fears

The ASX 200 closed up 0.3% on Tuesday and gained an impressive 2.2% on Wednesday after United States President Donald Trump indicated that the war in Iran should be winding down in the next two to three weeks.

As you’re likely aware, the war in the oil-rich Middle East has roiled global markets and sent oil prices surging almost 50% in March. It also saw the benchmark index slump 7.8% in the month just past.

While investors might have Trump to thank for this week’s earlier gains, we can also point the finger of blame at the US president for today’s steep intraday decline.

As many Aussies were sitting down to lunch today, Trump issued a decidedly hawkish speech outlining the ongoing conflict.

Parts of his speech were in line with his earlier remarks that the war is approaching its conclusion. He noted that America’s “core strategic objectives are nearing completion.”

“We are going to finish the job, and we’re going to finish it very fast. We’re getting very close,” he said.

But the ASX 200 tumbled alongside futures on the S&P 500 Index (SP: .INX) and the Nasdaq Composite Index (NASDAQ: .IXIC), with Trump adding, “over the next two to three weeks, we’re going to bring them back to the stone ages where they belong”.

Trump said if the Iranian regime doesn’t reach a deal he finds acceptable, the US will proceed to destroy all of Iran’s power plants.

Commenting on investors’ negative reaction to Trump’s speech, Rodrigo Catril, a currency strategist at National Australia Bank Ltd (ASX: NAB) said (quoted by Bloomberg):

The market is seemingly focusing on the idea that the war has not ended, the US is looking for escalation and hoping that will force Iran to make a deal.

Oil price spikes

On the heels of Trump’s speech, the Brent crude oil price spiked 4.1% to US$105.34 per barrel.

That’s clearly seeing ASX 200 investors reevaluate the inflation outlook as well as the potential for further interest rate increases from the RBA and other leading central banks.

That picture has put gold stocks under pressure, as gold tends to perform better in low or falling rate environments.

Indeed, the Northern Star Resources Ltd (ASX: NST) share price is down 3.2% since noon.

And, as you might expect, following on Trump’s speech and the resulting oil price spike, Woodside Energy Group Ltd (ASX: WDS) shares surged 5.1% in intraday trading.

The post Why did the ASX 200 just plunge 1.4% in Thursday afternoon trade? appeared first on The Motley Fool Australia.

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Motley Fool contributor Bernd Struben has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.