Susannah Streeter, Chief Market Strategist, Wealth Club: “Talk of more negotiations over the Middle East conflict has lifted hopes of a resolution. Oil prices have nudged lower and optimism has returned, giving equity markets a lift. Investors appear willing to take on more risk and deploy capital amid expectations that the crisis will calm. After strong gains on Wall Street and positive sentiment across Asian markets, the FTSE 100 has opened higher, although caution remains.
While the key Strait of Hormuz remains blockaded, with the US accusing Iran of economic terrorism, there are signs that behind-the-scenes negotiations are being prepared between Tehran and Washington ahead of the end of the fortnight-long ceasefire in a week’s time. In addition, Israeli and Lebanese ambassadors are scheduled to meet in Washington, a key development given Tehran’s insistence that any ceasefire must include a cessation of all strikes.
The duration of restrictions on Iran’s nuclear activity appears to be a major sticking point. The US is reportedly calling for a 20-year halt to development, while Iran is only willing to concede five years. So, while the door appears open to a deal, particularly given political pressure in the US, there remains a significant gap between the positions of both sides. As a result, the squeeze on energy supplies is likely to remain a disruptive force, and markets may stay jittery.
BP’s trading update reflects this uncertainty, with the company highlighting that volatile commodity markets will be a key feature of its first-quarter results. Its trading division is expected to deliver an exceptional performance, driven by crude prices hitting hot levels amid the Iran war and the scramble for supplies of oil, natural gas, and refined products. Refining margins are also set to rise, and production is expected to remain broadly stable. However, net debt is forecast to increase to $25 - $27 billion because more cash is being tied up in day-to-day operations. As oil prices rise, BP is likely to need more money to hold the same barrels and to keep its trading activity running, which pushes up borrowing in the short term. Shares have dipped today, reflecting the easing of oil prices, with Brent crude hovering around $98 a barrel.
Shares in UK grocers are in positive territory after shoppers showed more resilience in their spending patterns than expected in March. An early Easter helped boost supermarket sales. According to the British Retail Consortium, food sales increased by 6.8%, well above the 2.9% growth recorded in February. While food price inflation likely accounted for a large portion of this increase, families still appeared willing to spend on Easter celebrations despite cost-of-living concerns.
Although food is essential — allowing retailers to pass on higher costs more easily — celebratory purchases are more discretionary, yet remained robust in March. However, if fuel prices stay elevated and broader costs continue to rise, households are likely to become more cautious, trade down to cheaper brands, and reduce non-essential spending.”
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