Susannah Streeter, head of money and markets, Hargreaves Lansdown: ‘’Optimism about the fragile ceasefire holding between Iran and Israel has bubbled through markets, lifting equities, but more doubts are now creeping in about the truce holding. Wall Street rose in a relief wave, pushing the S&P 500 close to record highs. Sentiment has held up in Asia and European indices largely look set for a positive start to trading. Nevertheless, a little more uncertainty is seeping in. A leaked report from US Intelligence casting doubt on the effectiveness of the US strikes in crippling Tehran’s nuclear capabilities, has led to some worries that military action could resume.
Oil prices remain volatile with Brent Crude heading slightly higher on the speculation about hostilities breaking out again. It’s trading above $68 dollars a barrel, also gaining strength from industry data indicating supplies are tighter in the market. US crude stocks fell by 4.28 million barrels last week, sharply higher than the forecast 0.6 million barrel decline. It’s unlikely to move the dial much given that some OPEC+ nations have spare capacity to pump in. The main driver of oil prices right now is still the situation in the Middle East and worries over disruption around the crucial crude shipping route through the Strait of Hormuz. But the outcome of US tariff policy is also unpredictable and given downgrades to global growth forecasts, there’s still an undercurrent of lower demand expectations which could keep prices lower if the truce holds.
Hot geopolitics is the big subject of the debate at the NATO summit and has prompted nations to pledge to sharply increase their military spending targets. Such is the seriousness of the threats facing the alliance that countries appear to have committed to spending 5% of GDP on defence and related infrastructure. This is being seen as a big win for the President Trump who has, for years, berated allies for contributing way less than the US to NATO budgets. Brevity is expected in the wording, but the commitments will have long term repercussions in terms of unity for the alliance going forward. The deal is likely to keep prospects for defence stocks solid but much of the spending expectations have already been baked into valuations. Nations will also be keen to strike favourable terms for upcoming contracts, given the pressure on public purses, so are likely to try and drive a hard bargain.’’
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