Brent crude is back above $101 a barrel as renewed attacks in the Middle East reignite concerns over energy supplies.
The Footsie is on the backfoot in early trade, but Wall Street set to hang onto record levels, with investors adjusting to the ‘new normal’
The Strait of Hormuz remains a major flashpoint, with repeated attacks and suspicious incidents involving tankers keeping shipping and insurance costs elevated.
India has joined the rate-tightening camp, raising its repo rate by 25 basis points to 5.5%, its first hike since February 2023.
UK house prices were flat in September, while mortgage enquiries picked up, suggesting buyers remain highly cautious.
Shell is benefiting from the fuel squeeze, raising its Q3 Integrated Gas production forecast and seeing its refining margin surge to a record $42 a barrel.
France is grappling with the twin pressures of political unrest and expensive government borrowing, although a promise from Marine Le Pen of deeper spending cuts has helped ease bond yields.
Susannah Streeter, Chief Investment Strategist, Wealth Club said: ”The exuberance which washed over financial markets after energy prices dipped slightly has faded, with renewed attacks in the Middle East demonstrating how a resolution to the crisis remains elusive.
“The Footsie was on the back foot in early trade as investors assessed the inflationary pressures hanging over markets, and the unpalatable central bank medicine which may have to be administered. However, Wall Street looks set for a broadly flat open, with the current febrile environment seemingly taken in investors’ stride as the new normal.
“The markets are still pricing in mammoth advances in AI spending across the globe, keeping tech giants buoyant and indices at record levels. Brent crude has risen back above $101 a barrel following attacks by Yemen’s Houthi rebels on targets in southern Saudi Arabia, with the fresh escalation reviving concerns about the security of energy supplies.
“Attacks on ships in and around the Strait of Hormuz have also ramped up, with multiple incidents reported by the UKMTO this week, a Royal Navy-led maritime security monitoring service which has become a key source of information for shipping companies concerned about security. It’s clear that traversing the Strait remains dangerous, even though more tankers have been making passage through the waterway.
“Sharply higher insurance prices are reflecting this, while longer wait times and deviations are also adding to costs borne by freight companies, alongside more expensive fuel. Some of those higher costs are likely to feed through to consumers, adding to inflationary pressures which central banks are grappling with. The Reserve Bank of India has hiked rates for the first time since February 2023, with the repo rate rising 25 basis points to 5.5%. India, a major energy importer, is particularly exposed to the spike in energy costs, and companies are passing on higher overheads to consumers, unable to continue absorbing the financial burden. Investors are bracing for more central banks to follow suit.
“With financial markets pricing in a more than 90% chance of a quarter-point Bank of England rate rise after its November meeting, and three further rises in 2027, cheaper mortgage deals have evaporated, creating deep uncertainty for the UK housing market. Lloyds data shows house prices were flat in September, after recording their first annual fall since 2023 in August. On a quarterly basis, prices were down 0.2%, as higher mortgage rates put pressure on the market.
“The worry is that this is a lull before another decline in prices, as buyers baulk at taking on bigger loans, especially with higher energy bills landing and the prospect that food prices may also escalate.”
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