Rattled investors have been offered some temporary relief as Donald Trump indicated the Iran conflict will end ‘very soon’, in an attempt to stabilise oil markets.
After a volatile start to the week, brent crude prices are hovering at $91 a barrel, having reached $120 at one point on Monday, after the President’s comments.
Equity markets have also reacted positively, with the FTSE 100 gaining over 170 points, or 1.7 per cent this morning, to 10,425 after closing the day 0.3 per cent lower on Monday.
Other European indices opened in the green as Asian markets recovered some of its losses overnight. The Stoxx Europe 600 is up 2.24 per cent while Germany’s Dax is trading 2.5 per cent higher.
Investors have seen stock markt confidence shattered over the past week as high-flying markets have sunk on the emergence of war with Iran.
‘A relief rally is now taking hold as hopes lift that an end to the conflict could be in sight,’ said Susannah Streeter, chief investment strategist at the Wealth Club. ‘But given that the fighting is continuing and the key Strait of Hormuz remains impassable, worry is still percolating.’
Trump has promised to hit Iran ‘twenty times harder’ if it does anything to stop oil flow
There is no sign that the Strait of Hormuz will reopen, even after Trump said he would hit Iran ‘twenty times harder than they have been hit thus far’ if it ‘does anything’ to stop the flow of oil.
Meanwhile, Saudi Arabia joined other countries in cutting oil output as storage fills up, in a further sign of disruption.
While Trump has pledged the US Navy will escort tankers through the Strait, there is very little detail on how and when this would work.
‘Until a longer-term resolution is found, companies and consumers are still set to pay the price for the attack by the US and Israel on Iran,’ said Streeter.
‘The repercussions for an array of everyday costs affecting companies and households are becoming clear.’
Oil prices are more than 25 per cent higher than at the start of the conflict, while UK gas futures have doubled, fuelling concern about what it means for household energy bills.
In Britain, gilt yields spiked on Monday on heightened inflation fears but pared their losses the afternoon.
This morning, five and 10-year gilts fell back to levels seen last week, at 4.13 and 4.75 per cent respectively.
Traders also slashed the chances of a March rate cut to near zero and expect no rate cuts this year.
On Monday, there was growing speculation that the Bank of England would need to raise rates later this year, but this seems to have been misplaced.
Neil Wilson, UK investment strategist at Saxo said: ‘A Bank of England rate cut this month may be back on the table (although I would argue it was never off the table). It completes a pretty madcap couple of days for the markets.’
He added: ‘The risks are still high, just not as elevated as predicted over the weekend. And as colleague suggested yesterday morning, Trump had to do something to calm markets – so this cannot be seen as a sign peace is about to break out – there is a tactical element to these comments, but nevertheless it underlines that the US isn’t going to push this to breaking point, which removes some of the fatness from the tails to the risk picture. Not the beginning of the end, but the end of the beginning.’
Persimmon led the FTSE 100, rising nearly 9 per cent, after reporting a boost to revenue and profits. British Airways owner IAG was also among the top gainers as Trump’s comments assuaged concerns over a prolonged conflict.
BP and Shell are at the bottom of the FTSE 100, slipping 3 and 2 per cent, respectively.
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