Oil prices have spiked to the brink of $100 again as the new week starts, due to fresh escalation in the US-Iran conflict.
Brent crude rose to $97 per barrel, while WTI hit $92 as reports of missile strikes on oil tankers and other targets circulated.
Yields on major sovereign bonds including US treasuries and gilts continued to hover at the elevated levels reached last week. The energy market trouble has only served to further entrench expectations of sticky inflation and rising interest rates.
US-orchestrated peace talks with Russia and Ukraine over the weekend did not offer anything concrete to suggest oil and gas markets are set to benefit from a near-term ending of that war.
Equities have started the week close to flat, with the FTSE 100 edging up 0.1% to 10,846 points and the Stoxx Europe 600 completely unmoved at 650 points.
The AfD’s provisional victory in the Saxony regional election has had little obvious impact on European markets, with it being widely expected based on polling.
Dan Coatsworth, head of markets at AJ Bell, said: “Following mixed fortunes across the main Asian equity markets, UK stocks made a lacklustre start to the trading week.
“Many of the headlines from the dominant AI theme remain positive, and that supported gains for South Korean stocks, but investors are having to contend with the potential for an interest rate hike at the US Federal Reserve’s meeting later this month.
“Friday’s much stronger than expected US jobs numbers pushed market pricing on an increase in interest rates to a 58%-60% probability.
“Though jobs reports in the US have become increasingly unpredictable and volatile, the latest robust reading could indicate the economy is running a little too hot for the Fed’s liking,” he continued.
“Chair Kevin Warsh and his colleagues might adopt the pose of a latter-day Goldilocks sizing up a steaming bowl of porridge.
“Concern about inflationary risks is only exacerbated by the latest moves in energy markets, as Brent crude briefly ticked over $97 per barrel.”
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Susannah Streeter, chief investment strategist at Wealth Club added: ‘’As the war with Iran appears even more entrenched, energy prices are on the rise again, creating a mood of caution.
“The moves come after attacks between the US and Iran intensified. American forces have targeted three oil tankers, after Iranian strikes on US warships.
“With the US trying to maintain a blockade on Iran crude exports, and the strikes from both sides turning the Strait of Hormuz into dangerous waters, supply concerns keep swirling,” Streeter continued.
“The energy crunch deep in a chronic phase but risks turning more acute with $100 a barrel prices back in sight.
“While higher crude prices are a bonus for oil majors, it’s a big headache for other industries, as the costs of keeping the light on, customers warm, and factories whirring becomes more onerous. They raise inflationary risks too, with the prospect of companies passing on the higher overheads as higher prices.”
