Oil up again as Iran hits back and bond market seeks clues from Burnham
Oil prices continued to climb as a new week began after the United States carried out further airstrikes over the weekend and Iran retaliated by hitting American bases in the region.
The price of a barrel of Brent crude crept up another half a cent to $88.2, while WTI hit $84. Both had been around the $70 mark before the conflict flared up again.
The FTSE 100 is down 0.3% at 10,566 points to start the week, Asian markets have broadly dipped, while futures are pointing to a mixed start for US indices when trading begins later on Monday.
Elsewhere, Andy Burnham’s uncontested move into 10 Downing Street is due to be completed today.
Bond investors and currency markets will be listening very carefully for any policy hints, particularly anything that points to a worsening of the UK’s already-troubled fiscal position.
Burnham’s selection for Chancellor of the Exchequer is arguably the main event for markets, with Home Secretary Shabana Mahmood expected to get the nod.
Ten-year gilt yields have crept up to the 5% mark again, while the pound is virtually flat at $1.34.
Susannah Streeter, chief investment strategist at Wealth Club, said: “The upsurge in fighting in the Middle East has caused fresh jitters across global markets. Japan’s Nikkei plunged more than 4%, and the uneasiness has spread into Europe.
“London’s FTSE 100 has opened lower as fresh worries about tense geopolitics and higher energy prices collide with the uncertainty surrounding the new Burnham administration, and what future policy direction will mean for the UK economy.
“Brent crude has set off on a hot streak, trading around $90 a barrel as military action has intensified between the US and Iran. That’s an increase of 30% from lows seen earlier in the month.
“Already the latest attacks have expanded beyond military targets, with bridges, utilities, and port facilities coming under attack, and the countdown is on to an even wider escalation, given that President Trump has vowed to increase attacks on Iranian infrastructure on Wednesday,” Streeter continued.
“This could trigger further retaliation, ensnaring the region in an even more complex situation.”
See also: Tailwind for Burnham as UK GDP scrapes some growth in May
Russ Mould, investment director at AJ Bell, added: “Shabana Mahmood is the favourite to become chancellor and so far, bond markets seem to prefer her as the likely candidate rather than Ed Miliband.
“Gilt yields eased back last week on speculation that Mahmood would get the job, which is the biggest clue that markets are accepting the governmental change in a calm manner.
“That’s good for now, but it’s what comes next that really matters. Bond investors are looking for any clues on public spending intentions, how they will be funded, and any policies that deviate from the path pursued under the Starmer-Reeves regime,” he continued.
“Burnham’s big speech later today might offer a glimpse at what he wants to achieve but is unlikely to give the full picture.
“Political change is a lot for investors to digest, but they’ve got more on their plate. The Iran war has escalated and driven oil prices back above $90 a barrel. That means inflation fears are back on the table, which has major implications for interest rate expectations.”
