Susannah Streeter, chief investment strategist, Wealth Club: ‘’The mood has turned flat, as the stalemate in the Middle East dampens enthusiasm and businesses brace for higher bills which will weigh on spending. The FTSE 100 has wavered in early trade as investors assess the latest twists in the conflict, with Iran accusing the US of breaching their ceasefire and warning it was ready to retaliate. Bandar, a port city, has reportedly been targeted and a US drone was brought down. Nevertheless, there are still hopes that a deal will be reached despite the recent skirmishes, and that’s being reflected to some extent in oil prices, which remain fluctuating below $100 a barrel, with Brent crude currently trading just above $97. With Gulf states intensifying pressure on the US to pursue peace, and the mid-term election campaigns heating up in the States, the expectation is that some kind of resolution will be agreed, but more patience is clearly needed.
BP shares have continued their descent, as the lower oil prices collide with the shock ousting of the chair, Albert Manifold. He was removed for conduct issues, deemed to be unacceptable. The stock fell 5% on Tuesday and continues to stay under pressure. It's like a revolving door at the energy giant - with Manifold only in the position for less than a year, and an interim chair, independent director Ian Tyler, now taking his seat. Given that Manifold was brought in to oversee the refocus on oil and gas, there will be concern that this policy direction will be disrupted.
US indices are largely shrugging off the shadow of conflict in the Middle East, with the Nasdaq powering higher as enthusiasm around artificial intelligence eclipses concerns about rising geopolitical risk. Despite fears that the war is triggering fresh inflationary pressures, appetite for big tech has remained remarkably resilient. Instead, investors are doubling down on the view that the AI juggernaut still has much further to run, with chipmakers and cloud computing giants continuing to attract huge flows of capital.
But consumers are counting the cost of the war in Iran as they brace for another sharp rise in household energy bills, with the increase threatening to sap spending power. The rise in the energy price cap in the UK from July is set to weigh on already fragile consumer confidence. Household energy prices will rise by 13% due to soaring wholesale costs, a highly unwelcome change, just as bills had been reducing. Regulator Ofgem says a household using a typical amount of gas and electricity will pay £221 more a year, taking the annual bill to £1,862. The increase is likely to deepen pressure on household finances just as many consumers had started to feel some relief from the cost-of-living squeeze. Higher energy costs are expected to leave households with less money to spend on everything from eating out and holidays to wardrobe upgrades, raising fresh concerns for retailers, hospitality businesses and the wider services sector, which relies heavily on discretionary spending.
Businesses have also turned ultra-cautious, with energy prices already painful and other costs looking set to ramp up through supply chains. Many firms are in wait-and-see mode, pausing expansion plans in the pipeline. The Barclays Business Prosperity Index shows four-fifths of businesses in the UK have experienced a negative impact from the Middle East conflict and are mothballing investment. More than two-thirds (64%) said energy and fuel costs were impacting their business. Over a third have been hit by higher shipping and logistics costs. Firms are battening down the hatches and waiting for the storm to pass. This will act as a drag on growth, and is likely to keep unemployment elevated. Unfortunately, energy costs aren’t likely to dip significantly any time soon, even if there is an imminent deal between the US and Iran, given that supply chain issues are set to persist and it’ll take months, if not years, to repair damaged infrastructure in the Gulf region. However, a resolution would help confidence, and certainly assuage fears of a longer energy crunch.’’
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