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London Quick Take - 20 July - Oil hits $90 as US-Iran conflict escalates
Neil Wilson
Investor Content Strategist
Note: This is marketing material. This article is not investment advice, capital is at risk.
The conflict in the Middle East appeared to broaden and escalate further over the weekend with the US hitting an Iranian nuclear power plant, while three American servicemen were killed in Jordan and Iraq and Iran hit a desalination plant in Kuwait...Brent crude futures gapped up above $90 a barrel and have sustained the gains overnight before we saw a bit of a pullback in early trade in Europe. The MoU is effectively dead in the Strait of Hormuz and Gulf energy infrastructure is now back in the firing in line with all the associated market risks. Risks now seem skewed towards higher for longer energy prices, inflation and rates.
Stocks opened mixed across Europe with the FTSE 100 down –0.4% and DAX rising +0.2% after Asia was mixed with China trending higher and South Korea down –5% in catch-up trade after being closed on Friday with semis leading declines on Wall Street as the S&P 500 closed the week lower. Bond yields climbed as the rise in energy prices raised the old inflationary spectre once again...this week we have some key UK data on inflation – more below.
Reflecting the uncertainty around the Middle East, Ryanair profits fell by a third as it contends with lower fares and higher fuel costs. Fares for the summer look soft as consumers are nervous about the impact of the Iran war and the economy.
Some key things to look for this week
Andy Burnham will become Britain's seventh prime minister in 10 years ..Markets should quickly start to get a sense of what's in store on the economic and fiscal side of policy. At least you would hope so. His biggest decision will be who to name as Chancellor to replace Rachel Reeves. Markets seemed to cheer news it won't be Ed Miliband.
He'll have a very swift introduction to the state of the economy with the UK's unemployment, average earnings and jobless claims figures due on Tuesday. The weakness in the labour market has been a constant concern for the Bank of England and underscored why there is no need to raise interest rates despite the uptick in inflation from the Middle East conflict. Although the unemployment rate ticked down to 4.9% from 5.0%, payrolls were down 0.5% on the year to April and were –0.4% lower to May based on early estimates, while job vacancies continued to decline to the lowest level since 2021. Against such a weak hiring environment wage growth has also notably cooled with private sector earnings growth at a five-year low.
UK CPI inflation data for June follows on Wednesday. CPI unexpectedly held steady at 2.8% in May against forecasts for it to rise to 3% as benign food inflation kept the headline print in check. Services inflation, which is a bit stickier, did climb to 3.7% from 3.2% from April. Core inflation also edged up to 2.6% from 2.5%, but we are a long way off the 4% level that you’d think would call for a rate hike against such a difficult economic backdrop and soft labour market.
Also this week earnings season kicks into gear in Europe and the US, with results from Tesla, Alphabet and Intel among the highlights on Wall Street in a packed calendar with nearly 80 S&P 500 companies reporting. The European Central Bank is likely to hold fire on a hike as it awaits incoming data.
On the AI trade - Kimi K3 is a sign of the times - the frontier is a battleground and higher spending does not necessarily equal higher returns...chip stocks to remain under pressure you would feel.
Stocks opened mixed across Europe with the FTSE 100 down –0.4% and DAX rising +0.2% after Asia was mixed with China trending higher and South Korea down –5% in catch-up trade after being closed on Friday with semis leading declines on Wall Street as the S&P 500 closed the week lower. Bond yields climbed as the rise in energy prices raised the old inflationary spectre once again...this week we have some key UK data on inflation – more below.
Reflecting the uncertainty around the Middle East, Ryanair profits fell by a third as it contends with lower fares and higher fuel costs. Fares for the summer look soft as consumers are nervous about the impact of the Iran war and the economy.
Some key things to look for this week
Andy Burnham will become Britain's seventh prime minister in 10 years ..Markets should quickly start to get a sense of what's in store on the economic and fiscal side of policy. At least you would hope so. His biggest decision will be who to name as Chancellor to replace Rachel Reeves. Markets seemed to cheer news it won't be Ed Miliband.
He'll have a very swift introduction to the state of the economy with the UK's unemployment, average earnings and jobless claims figures due on Tuesday. The weakness in the labour market has been a constant concern for the Bank of England and underscored why there is no need to raise interest rates despite the uptick in inflation from the Middle East conflict. Although the unemployment rate ticked down to 4.9% from 5.0%, payrolls were down 0.5% on the year to April and were –0.4% lower to May based on early estimates, while job vacancies continued to decline to the lowest level since 2021. Against such a weak hiring environment wage growth has also notably cooled with private sector earnings growth at a five-year low.
UK CPI inflation data for June follows on Wednesday. CPI unexpectedly held steady at 2.8% in May against forecasts for it to rise to 3% as benign food inflation kept the headline print in check. Services inflation, which is a bit stickier, did climb to 3.7% from 3.2% from April. Core inflation also edged up to 2.6% from 2.5%, but we are a long way off the 4% level that you’d think would call for a rate hike against such a difficult economic backdrop and soft labour market.
Also this week earnings season kicks into gear in Europe and the US, with results from Tesla, Alphabet and Intel among the highlights on Wall Street in a packed calendar with nearly 80 S&P 500 companies reporting. The European Central Bank is likely to hold fire on a hike as it awaits incoming data.
On the AI trade - Kimi K3 is a sign of the times - the frontier is a battleground and higher spending does not necessarily equal higher returns...chip stocks to remain under pressure you would feel.
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