Profit warnings: War volatility, supply shocks, fuel costs hit ASX companies as consumer confidence slumps

The supply chain and energy cost chaos unleashed by the Middle East conflict are wrecking consumer confidence as companies reveal a broad range of profit warnings.

Already this week, Westpac blamed soaring interest rate volatility for a hit to its profit margins, infant-formula supplier a2 Milk warned on rising freight costs, Qantas flagged a soaring fuel bill, and payments company EML blamed a huge profit downgrade on weak consumer demand.

Beneath the surface the S&P/ASX 200 is creaking, but its modest 2.2 per cent fall since the war’s February 27 start disguises growing alarm bells about falling corporate profits and the rising living costs for Australian consumers.

Costs soar

On Wednesday, data from the Westpac–Melbourne Institute Consumer Sentiment showed that consumer confidence plunged to its lowest since the COVID lockdowns, as Australians worried more about interest rate increases, job security, and soaring fuel bills.

“This is the worst read on job expectations since August 2020, one of the darkest moments during the COVID-19 pandemic,” Westpac warned on Tuesday.

The lender also posted its own profit margin and bad debt warning on Tuesday as shares lost 2.6 per cent. It blamed the falling margins on soaring market volatility linked to the sharply higher cost of borrowing over March.

Elsewhere, Qantas stock traded down 1 per cent as the airline warned it will spend up to $800 million more than expected on fuel over the six months to June 30 even as it cuts back domestic flights.

Analysts said the airline’s full-year profit could fall by as much as $500 million even as it lifts airfares to make passengers foot some of the rising bill from the Middle East crisis.

“Fuel prices through the roof, roads are dead, shopping centres quiet and Sydney Airport last week the least busy I’ve seen in a long time,” IG Markets analyst Tony Sycamore said of the gloom engulfing consumers.

HSBC estimated the twin shocks from the Reserve Bank’s 50 basis points of back-to-back rate increases in 2026 and a 59 per cent jump in petrol costs have already lowered average disposable incomes by nearly 2 per cent.

This means every working Australian is taking a wealth hit from the war and every business that spends a lot on fuel or energy will see their profits fall — potentially significant amounts.

Economic growth predicted to turn negative

HSBC also warned it expects economic growth to turn negative over the quarter to June 30 to mean the economy is just one more consecutive quarter of negative growth away from an official recession.

The surprise then is that the share market has not plunged lower than a mere 2.3 per cent fall since the start of the energy shock.

Much of its relative resilience is due to the significant weighting to the big miners and energy producers that benefit from rising commodity prices, albeit offset by rising fuel costs.

Copper prices jumped again on Tuesday and are now at more than $US6 a pound at their highest level since the war began. This helped shares in market heavyweight BHP Group advance 3.5 per cent to $56.25 at their highest level since March 4 near the beginning of the war.

Between them, financials and materials sectors make up 58.8 per cent of the S&P/ASX 200 Index and their relative strength is what has disguised other problems in the market including in tech, retail, travel and other consumer-facing businesses.

Investors are also pinning their hopes on a permanent Middle East ceasefire this week on news reports that talks between the US and Iran restarted on Monday.

Some share market winners may even be emerging from the chaos. On Tuesday, Morgan Stanley said it thinks Macquarie Group will profit heavily from the wild swings in commodity prices.

Macquarie’s Commodities and Global Markets (CGM) division is one of the world’s largest traders of oil and gas and its shares jumped 3.8 per cent on Tuesday after Morgan Stanley said it can lift profits due to the Middle East crisis.