Derren Nathan, head of equity research, Hargreaves Lansdown:
“After two days of gains, the FTSE 100 has given back a little this morning as investors seek out concrete signs of progress towards a peace deal between Washington and Iran and the resumption of oil and gas transit through the Strait of Hormuz. So far, the main communication channels appear to be traditional and social media, as well as third-party states. It may take a formal agreement or at least a move to the negotiating table to steady markets further. While the bears may have the edge this morning, there could be bulls waiting in the wings if moves towards a resolution gather pace.
Gold has fallen back below $4,500 per ounce, around $1,000 lower than the peaks seen at the end of January. Interest rate expectations, rather than safe-haven appeal, have been in the driving seat. The inflationary impact of the oil market dislocation has increased the probability of a Fed rate hold until at least October from around 11% to 62% over the last month. Markets now see a 38% chance of at least a quarter-point rise, and when it comes to the possibility of a cut, all bets are off. Things could change quickly if Middle Eastern tensions simmer down, but the longer oil routes remain blocked, the more embedded hawkish forecasts will become.
US stock futures are also trading down this morning after yesterday’s broad-based gains. Outside of the geopolitical stage, weekly jobless figures will be a key datapoint for today, with new benefit claimants expected to rise slightly from last week’s 205k to 211k, still relatively low by historical standards. In recent times, weaker-than-expected labour market numbers have been seen as potential catalysts for rate cuts and greeted favourably by stock markets. However, in the current climate, signs that higher fuel prices and the fear factor are dragging on economic activity could be a negative for equities. Speeches by Fed Vice Chair Barr and Governors Cook and Jefferson are also lined up for today, giving further clues around the outlook for the economy and monetary policy.
Brent Crude is pushing on $105 this morning after bottoming out at nearly $97 in yesterday’s session as traders try and second guess the path of the Iran War.
Turning to natural gas, US gas storage figures are expected to show a 49 billion cubic feet (Bcf) increase after unseasonably mild weather saw stockpiles rise by 35 Bcf in the world’s largest producer and exporter of natural gas. US natural gas prices are down 6.5% year to date in contrast to a 90% rise in the European Union, reflecting the trading bloc’s reliance on imports.”
Matt Britzman, senior equity analyst, Hargreaves Lansdown: “Memory stocks like Micron and SK Hynix look to be having their very own DeepSeek moment, with Google’s TurboQuant (software that reduces the memory needed to run AI models) triggering fears that improving efficiency will structurally reduce hardware demand, specifically memory. But if we cast our minds back, DeepSeek fears were ultimately unfounded, demand for AI infrastructure has only increased, and it proved to be a great buying opportunity for AI names. Improving model efficiency isn’t a new concept, far from it, but it doesn’t need to be feared. Reducing memory per task often enables longer prompts, more users, and higher throughput on the same infrastructure. That dynamic ties directly into Jevons paradox: making AI models cheaper to run tends to increase usage, which can end up driving more, not less, demand over time.”
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