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London Quick Take - 8 Sep - Brent crude barrels towards $100, FTSE 100 lower despite lift from record copper prices
Neil Wilson
Investor Content Strategist
Note: This is marketing material. This article is not investment advice, capital is at risk.
Oil is the focal point for markets as yields back up again and stocks trade broadly lower. Brent crude trades higher for a third straight session, approaching $100 amid reports that Yemen’s Iran-backed Houthis have hit energy facilities in Saudi Arabia. Operations at energy sites near to Yemen have been halted. It comes after reports that Saudi Aramco’s Jizan refinery was hit, whilst Iran said it’s close to doing a deal with Oman to manage the waterway. With Brent approaching $100 markets are pricing in a longer war and more disruption to global energy markets. Brent rallied +2% to above $99, where it’s closed the gap to the 24 July close. A sense today of disruption and conflict being a feature rather than a bug, and the implications for global markets that follow from structurally higher inflation dynamic alongside fiscal pressures. It's unclear whether there is a way out for Trump here. Look for a breach of $100 to potentially get driven up on technical momentum to $102, the 23 July peak.
Higher oil prices mean higher inflation and bond markets are sensitive to the fact. UK 10yr gilt yields traded around 3bps higher at 5.20% while yields are ticking up across the spectrum, including on Treasuries as the US reopens after the holiday. The 10yr Treasury yield also rose around 2bps 4.80%. Bond yields are not quite back to last week’s multi-year highs but there are some key tests coming – 10yr and 30yr Treasury auctions on Wednesday and Thursday, the start of Treasury’s enhanced buyback operation starting tomorrow, Friday’s key US CPI report plus the ECB decision on Thursday ahead of the Fed, BoJ and Bank of England meetings next week. BoE policymakers appear before the Treasury select committee later today and likely to show some cards in terms of their reaction function to the current situation.
Trade tensions are also to the fore as Canada’s retaliatory tariffs on about $20bn of US goods take effect today. President Trump railed that Canadian aircraft manufacturer Bombardier could no longer sell in the US.
Basic resources were doing their best to hold the FTSE 100 above the flatline. The move in oil lifted the likes of Shell and BP towards the top of the index. Copper prices also hit a record high on strong US flows ahead of a potential tariff announcement, which has given a bit of a lift to miners. Computacenter was a bright spot and can’t stop rising – this time up +3% as it raised its profit outlook alongside its half-year results. Despite pockets of strength the dampening effect on risk sentiment from the Iran flareups, higher oil prices and rising bond yields left the FTSE down around –0.34% to trade under 10,800 and retest the lows of the last two sessions around 10,790. More on the move in copper here from Ole.
European bourses were a touch lighter, down –0.45% on the DAX and CAC, and US futures were down as traders return to their desks on Wall Street after the Labor Day holiday. The Kospi hit a three-week high before turning south, while Japanese equities struggled under the weight on a stronger yen.
Japan’s yen hit a 7-month high versus the US dollar in a sign that this move is the real deal. USDJPY took a 152 handle at one stage, its lowest since February, before paring the move back to 154. Sentiment towards the yen has turned more positive on firming bets the Bank of Japan will lift interest rates quicker, whilst there are signs that Japan’s massive pension funds could be turning away from foreign debt to domestic bond markets. Japan’s health minister Kenichiro Ueno, who oversees the $2tn Government Pension Investment Fund, said they are considering a change to asset allocation, which may indicate a willingness to buy more domestic bonds. Meanwhile, Japanese GDP grew +0.4% QoQ in Q2, above forecasts and the third straight quarter of expansion. More from John on the yen here in the FX Trader.
Elsewhere, Dunelm shares plunged after it warned the summer heatwave hit sales, with shares down –10% as it said profits would miss expectations. A moribund housing market is not helping, while inflation means people are cutting back on big ticket items. The tough consumer environment triggered a profit warning in January – a new strategy involves cutting £100mn in costs and investing in opening ten new stores a year over the next three.
Finally, yesterday we heard from the Chancellor, John Healey. It was, as far as speeches from chancellors go, rather upbeat but didn’t really tell us anything about the Budget.
Higher oil prices mean higher inflation and bond markets are sensitive to the fact. UK 10yr gilt yields traded around 3bps higher at 5.20% while yields are ticking up across the spectrum, including on Treasuries as the US reopens after the holiday. The 10yr Treasury yield also rose around 2bps 4.80%. Bond yields are not quite back to last week’s multi-year highs but there are some key tests coming – 10yr and 30yr Treasury auctions on Wednesday and Thursday, the start of Treasury’s enhanced buyback operation starting tomorrow, Friday’s key US CPI report plus the ECB decision on Thursday ahead of the Fed, BoJ and Bank of England meetings next week. BoE policymakers appear before the Treasury select committee later today and likely to show some cards in terms of their reaction function to the current situation.
Trade tensions are also to the fore as Canada’s retaliatory tariffs on about $20bn of US goods take effect today. President Trump railed that Canadian aircraft manufacturer Bombardier could no longer sell in the US.
Basic resources were doing their best to hold the FTSE 100 above the flatline. The move in oil lifted the likes of Shell and BP towards the top of the index. Copper prices also hit a record high on strong US flows ahead of a potential tariff announcement, which has given a bit of a lift to miners. Computacenter was a bright spot and can’t stop rising – this time up +3% as it raised its profit outlook alongside its half-year results. Despite pockets of strength the dampening effect on risk sentiment from the Iran flareups, higher oil prices and rising bond yields left the FTSE down around –0.34% to trade under 10,800 and retest the lows of the last two sessions around 10,790. More on the move in copper here from Ole.
European bourses were a touch lighter, down –0.45% on the DAX and CAC, and US futures were down as traders return to their desks on Wall Street after the Labor Day holiday. The Kospi hit a three-week high before turning south, while Japanese equities struggled under the weight on a stronger yen.
Japan’s yen hit a 7-month high versus the US dollar in a sign that this move is the real deal. USDJPY took a 152 handle at one stage, its lowest since February, before paring the move back to 154. Sentiment towards the yen has turned more positive on firming bets the Bank of Japan will lift interest rates quicker, whilst there are signs that Japan’s massive pension funds could be turning away from foreign debt to domestic bond markets. Japan’s health minister Kenichiro Ueno, who oversees the $2tn Government Pension Investment Fund, said they are considering a change to asset allocation, which may indicate a willingness to buy more domestic bonds. Meanwhile, Japanese GDP grew +0.4% QoQ in Q2, above forecasts and the third straight quarter of expansion. More from John on the yen here in the FX Trader.
Elsewhere, Dunelm shares plunged after it warned the summer heatwave hit sales, with shares down –10% as it said profits would miss expectations. A moribund housing market is not helping, while inflation means people are cutting back on big ticket items. The tough consumer environment triggered a profit warning in January – a new strategy involves cutting £100mn in costs and investing in opening ten new stores a year over the next three.
Finally, yesterday we heard from the Chancellor, John Healey. It was, as far as speeches from chancellors go, rather upbeat but didn’t really tell us anything about the Budget.
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