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HL commentary as it happens
Wednesday 25th June
Brent Crude prices edge up amid uncertainty
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.
Equity markets largely trade higher as fragile ceasefire holds
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.
Monday 23rd June
Oil prices head higher ahead of potential supply disruption
At a time when there were signs that inflation was becoming a little less troublesome, the geopolitical situation has added a slick of fresh uncertainty into the mix, pushing up energy prices. Brent Crude had risen around 2% earlier but retraced some gains trading above $77 dollars a barrel.
While crude supplies are still flowing through the Strait of Hormuz off Iran, there’s concern that they could be severely disrupted if the conflict is prolonged. The US has warned that closing the narrow channel, through which around a quarter of global supplies flow, would be ‘economic suicide’ for the country. Iranian lawmakers have endorsed plans to close off the route, but the vote wasn’t binding as the decision will rest with the country’s leaders.
Crude prices are up around 25% since the end of May. Part of this is the recovery from the worst of the tariff threat fears hanging over the global economy, but the sharp escalation of the Middle East conflict has piled on pressure. If the Strait is closed there are fears it will lead to an oil price shock, and another big inflation problem.
Memories of the surge in prices after Russia’s attack on Ukraine are still front of mind, Brent crude oil prices surged to a peak of almost £120 a barrel. For now crude gains are limited, with traders speculating that Iran won’t fully close the strait, but the increases still mark a significant shift up in energy prices. UK gas prices are also hanging around highs not seen since the start of April, amid concerns about the disruption of LNG supplies from the Middle East. With wholesale energy prices rising, it’ll add to worries about the household price cap heading higher just as demand increases over the colder winter months.
FTSE 100 opens lower after the US struck Iran’s nuclear infrastructure
There is a tense mood on financial markets as investors assess the potential repercussions of the US attack on Iran. Investors had breathed a sigh of relief on Friday as it appeared a two-week window had opened when a diplomatic solution could be pursued, so the weekend’s military action has knocked sentiment. The FTSE 100 has opened in the red and European stocks are set for a weak start as a risk-off attitude percolates, and in the US, the S&P 500 future indicate a subdued session ahead. The pound has slipped back against the dollar, helping limit downwards pressure on London-listed multinational stocks a little.
Friday 20th June
Brent Crude steady at $77 per barrel, a six-month high
Brent crude oil prices remain at six-month highs of around $77 as traders assess the rapidly evolving crisis in the Middle East. For now, Iranian oil exports look to be unaffected with a report by Kpler suggesting tanker loadings had reached 2.2m barrels per day so far this week, a five-week high. Price support looks firm on the demand side after US crude inventories plummeted by 10.1m barrels compared to a forecasted fall of just 0.6m.
May retail sales show largest fall since December 2023
The slight uptick in confidence may do little to quell retailers’ nerves as shopkeepers digest today’s May retail sales figures which showed a 2.7% drop in volumes, much worse than the -0.5% forecasted. This was the worst read out since December 2023, with all sectors posting declines, with food stores leading the way.
UK consumer confidence stages fragile rebound
The latest GfK consumer confidence index improved by two points but remains in negative territory at -18. Consumers views on their personal finances were unchanged but confidence on the economic outlook has improved. But easing wage growth and the inflationary impact of recent fuel price rises could signal a tighter squeeze on shoppers as the year progresses.
Market reaction to Trump pausing on military decision
The chances of the immediate involvement of US forces in the Israel-Iran conflict have receded after Donald Trump said he would make a decision whether to attack Iran’s nuclear development facilities ‘within the next two weeks’. Diplomatic efforts to de-escalate the situation are also in train with a delegation from the UK, France and Germany set to hold talks with Iranian officials in Geneva later today.
That pause looks to have curbed investors risk aversion with both FTSE 100 and European stock futures pointing to a strong open today. London’s flagship index closed down a touch yesterday despite a closer than expected split in the Bank of England vote over interest rates. The Monetary Policy Committee stuck to the play book with a hold at 4.25%, but three of its nine members voted for a 25-point cut.
Market expectations of two further rate cuts this year are unchanged with the expectation pointing to initial cut in August. But the banks comments around heightened unpredictability, softening labour demand and a weak outlook for GDP growth of 0.25% for each remaining quarter of the year kept a lid on enthusiasm on the day.
Thursday 19th June
Oil prices wobble but hold recent gains
Oil prices are in a holding pattern as markets wait for clarity on possible US involvement in the Israel-Iran conflict. While the White House stayed vague after President Trump met with advisers, any direct action could escalate tensions and threaten vital energy routes like the Strait of Hormuz. Despite the pullback, prices remain near five-month highs, supported by ongoing geopolitical risk and the Fed’s signal of potential rate cuts later this year.
US rates stay put, with the UK expected to follow
Central banks are back in the spotlight today. After the US Federal Reserve kept interest rates on hold yesterday, it’s now the Bank of England’s turn to take centre stage. But don’t expect any surprises - markets are betting on a near-zero chance of a rate move this side of the Atlantic. Economic conditions have played out pretty much as expected since the last meeting in May.
Wage growth is starting to ease a bit, and there are some headwinds on the horizon - from rising tariffs to geopolitical tensions between Iran and Israel. Still, domestic demand remains solid, and inflation is still above target, giving policymakers enough reason to stick with a 'wait and see' approach for now. Perhaps more important than the decision itself, absent any surprise, will be the Bank’s statement later today to see how they’re reading the tea leaves.
US markets gave up early gains after the Federal Reserve held firm on interest rates, brushing off pressure from President Trump. But it wasn’t just the decision itself that moved markets - it was Fed Chair Jerome Powell’s cautious tone on inflation risks and the lingering uncertainty surrounding the full impact of tariffs.
Those pushing cuts point to recent inflation data showing minimal effects from tariffs so far. But the White House’s unpredictable tariff approach has forced the Fed into a reactive stance, navigating unknowns in both the timing and impact of such a widespread tariff strategy, rather than steering proactively.
European markets retreat as conflict fears rise
Markets are back under pressure as US officials continue to weigh the possibility of direct involvement in the escalating Iran-Israel conflict. Any move in that direction would likely rattle investor confidence further, raising fears of a broader regional escalation and dragging in other major powers like China, where trade talks with the US are already on a knife's edge. The FTSE 100 has mirrored the global risk-off mood, slipping in early trading and giving back yesterday’s modest gains.
Wednesday 18th June
Fed and BoE policymakers look set to keep rates on hold
The widening of conflict in the Middle East and unpredictability of trade policy means Fed policymakers are expected to keep the pause button firmly on hold later today when it comes to interest rates. This is despite the fact that the latest inflation reading came through softer than expected. Comments from Jerome Powell, the Fed chair will be closely watched for any indication of when a reduction will come. Wariness is set to remain the name of the game when it comes to monetary policy amid this escalation of conflict and erratic tariff threats. Markets are currently only fully pricing in a 0.25% rate cut by October, given the uncertainty of the current situation.
UK CPI inflation doesn’t budge in May, remaining at 3.4%
Just as sticky inflation is already a concern the surge in energy prices and a potential ramp up in shipping costs is set to cause more trouble. It’s certainly an extra headache for policymakers deciding on interest rate cuts this week.
Consumer Price Inflation hasn’t budged in the UK, coming in at 3.4% for May. This was expected and although this is a slightly better scenario than another ramp up in price increases, it’s unlikely to persuade more decision makers to vote for a rate cut tomorrow. Higher crude prices are set to lead to more expensive prices at the pumps, and potentially increased transport bills. Natural gas prices have also risen amid the geopolitical instability, given the potential disruption of LNG shipments from Qatar, which is the third largest global exporter.
A long, drawn-out conflict could keep prices elevated, which would have a knock-on effect on electricity prices, increasing energy bills for consumers and companies later this year, just as they had hoped lower costs were here to stay. Nevertheless at least two more interest rate cuts are expected from the Bank of England this year, with the chances of a reduction in August bulking up a little.
Investors in risk-off mood as Iran-Israel conflict looks set to intensify
Sentiment remains subdued as investors brace for the Iran-Israel conflict to intensify. Oil prices remain sharply higher on the week, as President Trump has called for Iran’s ‘unconditional surrender'. It appears that regime change in Iran looks like the ultimate goal so it’s not surprising that vigilance is settling in. The FTSE 100 is set to trade flat and is set to struggle to make up Tuesday’s losses. Wall Street futures also indicate restrained activity, as a risk-off mood percolates.
Given that a quarter of global oil supplies flow through the narrow strait of Hormuz off the Iranian coast, there is increasing concern that a prolonged war will lead to a significant disruption of supplies. Brent Crude is trading above $76 a barrel, around 10% higher compared to when the attacks on Iran began, at levels not seen since February. Already it appears some ships are avoiding the region. There’s not an exodus yet, but companies are operating with extreme caution, and a closure of the strait would disrupt global supply chains.