“The Iran conflict intensified over the weekend and oil briefly going above $115 a barrel has caused another bout of selling on financial markets,” says Dan Coatsworth, head of markets at AJ Bell.
“Tipping over the $100 a barrel level has major implications from a psychological and economical perspective. It significantly raises the chances of a sharp jump in inflation and interest rates shifting to a completely different path than the market had priced in only two weeks ago. Markets are now pointing towards a situation where UK interest rates could remain level for the rest of the year and potentially go up in 2027. That is radically different from recent expectations of more cuts this year.
“Investors are now weighing up the prospect of the Iran conflict lasting longer than they previously thought. Risk appetite has evaporated as investors lock in profits on areas of the market that have served them well in recent months and years, such as shares in Rolls-Royce and Lloyds, and gold. The precious metal was also dragged down by a strengthening US dollar which makes gold more expensive for buyers in other currencies.
“The FTSE 100 fell 1.2% to 10,160, with only a handful of stocks in positive territory including Shell and BP as two beneficiaries of the sharp rise in the oil price. Their earnings could soar in the near-term.
“One might have expected all types of commodity producers to be in demand if inflation picks up. When inflation goes up, investors often seek exposure to hard assets as they tend to retain value better than financial assets in such an environment. However, miners were among the biggest losers on the market on Monday.
“The spike in oil prices means mining companies face a sharp rise in costs to run their operations. There is also increased uncertainty around global economic activity because the Iran conflict puts a question mark over demand levels for metals and minerals near-term.
“Investors often turn to defensive-style industries in the face of uncertainty, such as grocers and tobacco producers. There are elements of that trend now at play, but these stocks are only relative winners, not absolute ones. For example, Imperial Brands was down 0.2% which is nowhere near as bad as the broader market, but still in negative territory. While Tesco fared better with a 0.2% rise, Sainsbury’s was down 1.1%. Events in Iran are moving so fast that many investors might simply want to sit on the sidelines for now.”
OIL MARKET
“Oil hadn’t traded above $100 per barrel since the months following the Russian invasion of Ukraine but in a matter of minutes on Monday the price had shot up to close to $120 per barrel.
“Having built steadily through last week, the continued escalation of hostilities in Iran and a sustained blockage of the Strait of Hormuz caused a blowout which saw prices move higher. The G7 is reported to be discussing a joint release of petroleum reserves this morning which has helped bring prices back a touch from their highs.
“Oil was below $60 per barrel as recently as January, having slowly eased as global energy markets absorbed the impact of sanctions on Russian assets.
“The surge in both oil and natural gas is a dramatic shift for the world economy to adjust to. After all, rising oil prices are known as a tax on growth.
“If prices were to follow the same trajectory as they did from 2022, with an initial spike followed by a long and gradual moderation of prices, then the impact could be long lasting in terms of inflation and the implications for interest rates.
“Much depends on how much longer the conflict lasts and when key infrastructure and shipping routes can be brought back to normality. For as long as that seems a distant prospect, the upwards pressure on energy markets is likely to continue.
“On the basis that the cure for high prices is high prices, eventually demand may drop, other production might ramp up to fill the gap, and the situation might stabilise. However, this now seems set to be a drawn-out affair.
“The surge in energy prices is good news for oil producers. It is bad news for importers of energy – which is why Asian countries, which are heavily reliant on imported gas and oil, have seen some of the biggest market falls.”
CLARKSON
“The global shipping market is in focus in a way it probably hasn’t been since Covid, making now an interesting time for broker Clarkson to announce its latest results.
“Clarkson works as an intermediary between ship owners and charterers – those looking to move cargo. That puts it right at the centre of several moving parts geopolitically, including tariffs and global conflicts.
“The company’s ability to navigate increasingly complex and fractured waters is reflected in the company’s 23rd consecutive increase in the dividend.
“Arguably these complexities make its services, which also include financing and data insights, even more crucial and Clarkson’s order book is moving higher at a rate of knots.”
NIGEL FARAGE / BITCOIN / STACK
“Nigel Farage has invested £215,000 in a buy-and-build company which plans to invest in bitcoin while it looks for acquisition targets.
“Stack is chaired by former chancellor Kwasi Kwarteng and having an association with two well-known political figures might help to boost the company’s profile. That is important given Stack has limited resources and may need to undertake multiple fundraisings if it wants to get the business off the ground.
“Having grand plans to build a portfolio of high-quality, cash-generative companies is one thing, executing on those plans and making them happen is another.”
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