Susannah Streeter, Chief Investment Strategist, Wealth Club: "Fresh talk of talks over Iran is raising hopes that this newly acute phase in the Middle East crisis could see some resolution. The FTSE 100 has set off on a confident run upwards in early trade, while futures markets indicate that Wall Street will also start on the front foot. Corporate news has also lifted sentiment, with AstraZeneca shaking off some of the gloom surrounding its recent trial disappointment, with investors welcoming a stronger-than-expected set of second-quarter results. Solid growth in its oncology and rare diseases businesses helped offset weaker performances elsewhere, while the company reiterated its confidence in its long-term growth ambitions despite the setback.
The big confidence booster for investors at the start of the week remains signs of progress in the Middle East. Early speculation that negotiations could resume has been reinforced by a second consecutive night without US strikes and by Tehran’s decision not to respond with further retaliatory action. While on the face of it the US administration is pushing the line that pressure is being maintained, markets remain cautious given the twists and turns during this conflict and the uncertainty over whether talks will actually come to fruition. Brent crude has fallen back sharply to trade around $90 a barrel, down by 10% since Friday, as fears of a prolonged energy crunch begin to ease. However, there is still significant uncertainty baked into these prices and a reticence about whether negotiations will lead to a lasting breakthrough. The weekend attacks by Houthi rebels continued at the Red Sea ports of Yanbu and Jizan, a reminder of how many more factions have been pulled into the war. Oil prices are still around a third higher over the month as tensions ratcheted up again. Nevertheless, with fresh negotiations looking increasingly likely, it appears to be a sign of progress, and there is an expectation that President Trump will want some kind of resolution given that the mid-term elections are looming and this war remains unpopular among voters.
With fears of a chronic energy crunch easing a little, it has helped take the pedal off borrowing costs, which accelerated higher last week. UK gilt yields have dipped back, easing the pressure slightly on the Burnham administration. This will be welcome given focus has switched firmly to the spending challenges facing the new government, with warnings from the Prime Minister that social care needs desperate reform to help save the NHS while also accepting that the benefits bill needs to be brought down. There is still a distinct lack of detail on how he and his ministers will go about tackling the huge costs of welfare, and so investors in government debt look set to stay wary while there’s so much talk but so little action on lowering government spending costs.
While some heat is being taken out of energy prices, there’s no change in temperature for emergency services fighting the ferocious fires raging, particularly in France and Spain. The devastating wildfires are set to leave a deep economic as well as environmental scar. As firefighters battle to contain the blazes, businesses are also counting the cost, as immediate harm is being felt across tourism, agriculture and local economies. But the financial toll is set to mount rapidly through soaring insurance claims, disrupted transport links and supply chains, and a hit to consumer spending in some of Europe’s most popular holiday destinations.
The timing couldn’t be much worse given it’s at the height of the summer getaway season, and prolonged disruption and poor air quality threaten to take a big bite out of tourism, a cornerstone of both the French and Spanish economies. Hotels, restaurants and attractions in affected regions face cancellations and lost trade during what would normally be their busiest weeks of the year. Tourists are being urged to stay away from the Gironde in particular right now, as key routes to the beaches remain closed while the fight to contain the dramatic blazes continues.
The flames are also threatening some of Europe’s most productive agricultural land. Vineyards in particular are at risk in Gironde, home to the famous Médoc wine route. While for now the flames are concentrated to the western side of the peninsula, even if vineyards escape the flames, they can still suffer from smoke taint, which can affect the quality and value of grapes. France’s public finances will also come under fresh strain, given the government faces the prospect of another hefty bill for emergency services, rebuilding infrastructure and supporting devastated communities at a time when it is already under pressure to rein in its budget deficit. Spain faces a similar challenge, with the major fires around Madrid adding another unexpected burden to public finances, forcing more spending on emergency response, reconstruction and longer-term climate resilience.
As extreme weather events become more frequent and more destructive, governments and businesses will have to dig deep, diverting money from investment and growth towards recovery and rebuilding. However, for infrastructure companies and renewable energy developers, the intensifying focus on climate risks could create a powerful tailwind. It’s forcing governments to rethink how resilient their economies are, accelerating spending on everything from fire and flood defences and upgraded power networks to more efficient water systems and climate-proof infrastructure.
The powerful fast-fashion giant Shein has stumbled, facing a big hurdle from the removal of US import duty exemptions amid the wider tariff war. Shein, which was founded in China, lost $99m in the first three months of the year, compared with net income of $395m a year earlier. It’s another sign that the huge wave of ultra-cheap fashion flooding Western markets may start to lose power. The removal of the US de minimis exemption has taken away a huge competitive advantage, forcing the retailer to put up prices and absorb higher costs at the same time. That’s a difficult combination for a business built on razor-thin margins and impulse purchases.
However, although the US and the EU have already acted to clamp down on low-value imports from fast-fashion giants, the UK is still playing catch-up. The government has brought forward plans to scrap customs duty relief on parcels worth less than £135, but the changes won’t come into force until October 2028. That’s left many major high street retailers frustrated that Britain continues to lag behind its biggest trading partners, allowing Shein and Temu to benefit from an advantage that has already been stripped away elsewhere.
For years, high street chains have complained they are fighting with one hand tied behind their back, competing against overseas rivals able to ship low-value parcels into major markets without facing the same import costs. As governments chip away at those tax advantages, the playing field is beginning to look a little more level, even if the UK is in the slow lane in this journey.”
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