ASX Has Its Worst Week Since 2022 as Stagflation Fears Hit

ASX Slides 4% for the Week as Oil Jumps and Sentiment Breaks

The ASX 200 fell 1.2% to 8,829, taking losses for the week to around 4%. That marks the worst weekly performance since May 2022, when the RBA shocked markets with an unexpected rate rise.

What makes this move stand out is how quickly sentiment has turned. Earlier in the week, the market was pushing record highs. Now we are seeing a clear shift from confidence to capitulation.

We can also see that change in positioning. Gold has broken above A$5,000 an ounce as investors move toward safety amid rising energy prices and inflation fears.

There is also a key paradox energy investors are now grappling with.

Overnight, Brent crude surged 4.9% to US$85 a barrel, while WTI jumped almost 7% to US$79.76. Yet despite that strength, Woodside rose only 1% and Santos gained just 1.4%, while refiners such as Ampol actually fell 1%.

That tells us the market is not responding to higher oil prices in a simple way. Investors are starting to weigh up the benefit of stronger commodity prices against the broader risk that rising energy costs push inflation higher, keep rates elevated, and weigh on growth.

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The Stagflation Trade Hits Australia

What the market is increasingly pricing in now is stagflation risk.

Higher oil prices do not automatically mean a clean win for energy stocks or for the broader market. Yes, higher prices can lift producer earnings, but that only really holds if economic activity stays strong. If oil keeps rising and forces interest rates higher, the damage to demand can quickly outweigh the benefit of stronger commodity prices.

That is the concern we are now seeing build.

The RBA’s stance, combined with bond market repricing, suggests investors are becoming more worried that sustained high oil prices could keep inflation sticky and force policy to stay tighter for longer. If that happens, the market is not just dealing with higher energy costs. We are dealing with the risk of slower growth, weaker demand, and a rising equity risk premium all at once.

That is why markets seem to be trading on three key assumptions. First, the RBA may need to keep hiking or at least remain more hawkish than hoped. Second, tighter policy would weigh on demand and broader economic growth. Third, that combination would put more pressure on equities, particularly in sectors exposed to cyclical demand.

We can already see that logic flowing through materials.

The sector fell 4%, with BHP and Rio Tinto both down more than 4% and Fortescue off 2.9%. That matters because China remains such a critical demand driver for Australia. When China slows, investors immediately start questioning demand for our key exports such as iron ore, coal, and lithium.

China’s Composite Leading Indicator at 98.80 is another warning sign, pointing to below-trend growth and weaker demand ahead. For Australia’s major resource names, that is a real headwind.

So the message from the market seems clear: investors are not confidently chasing an energy boom. They are hedging against the risk that this rally in oil becomes something more damaging, a stagflationary spiral where inflation stays high, rates stay restrictive, and growth starts to roll over.