The FTSE 100 has ticked up with the oil price rise driving gains for majors Shell and BP, but shares are falling elsewhere in Europe as the ceasefire struggles under the weight of indecision from US and Iranian leaders. The London blue chip index is up 0.15 per cent, but the Dax is down 0.2 per cent, while things are much worse in Paris, with the Cac down 0.9 per cent. Brent Crude is firmly back above $100 a barrel, as traders wait for something to happen, and the longer these negotiations last, the more likely it is that they fail.
“Totally unacceptable”: That’s the verdict of US President Donald Trump on Iran’s response to the peace proposal. The comments nudge in the direction of re-escalation, but I’d think there is going to be a fresh olive branch. Another hopeful Friday turns into a more worrying Monday with Iran headlines driving things, and crude prices rising about 4 per cent to reflect risks.
It comes as we enter a key week for the political sphere and the optics of the Trump-Xi Jinping meeting. The conflict in the Middle East, Taiwan, Ukraine, tariffs and AI are among the likely topics in what could be a key moment in the relationship between the two countries.
Elsewhere, political pressure is being keenly felt in the UK this week as Prime Minister Keir Starmer fights for his premiership. Leading light of the left, Angela Rayner, has delivered him an ultimatum: bring back Andy ‘we shouldn’t be in hock to the bond market’ Burnham or else. Starmer will do a ‘reset’ speech later today – it all seems a little too late. As of last night, some 42 Labour MPs had called on the PM to resign – 81 are needed to trigger a contest, so something could happen this week. After sliding for much of last week, gilt yields have jumped this morning on the political risk premia associated with a potential defenestration of Starmer and his chancellor, Rachel Reeves, as well as the situation in Iran and the oil price spike.
A more left-leaning government could be punished by markets; fiscal loosening is not what it wants to see at a time of existing pressures on finances, a fragile fiscal position, and higher borrowing costs due to the war. No fireworks yet, but we could see some outsized moves should a leadership contest be triggered. Bond vigilantes are watching, waiting. Sterling also ticked down but rallied back to 1.36 as it continues to be held in check by this level.
Inflation risks are at the top of mind as the Strait of Hormuz remains closed. This week is chock-full of inflation data. Data this morning shows China’s factory prices grew at the fastest pace since the pandemic as the US and Israel’s war with Iran raises costs, with producer prices rising 2.8 per cent in April from a year earlier, the highest since July 2022.
Earnings trump war risks as far as Wall Street is concerned. The S&P 500 and Nasdaq Composite each notched record intra-day and closing highs on Friday. Earnings expectations for the full year for the broad market now stand at 24 per cent. Tech leads the way with the Nasdaq up 4.5 per cent last week and the S&P 500 rising 2.3 per cent, each delivering a sixth straight weekly win – the best run in a couple of years. Jobs numbers were positive with the nonfarm payrolls coming in at 115,000 vs the 55,000 expected, while the unemployment rate was steady at 4.3 per cent.
Earnings season is almost over in the US – although Nvidia is the key piece of the puzzle reporting on 20 May – but this week there is plenty of interest in the UK with results from the likes of Vodafone, Burberry and Greggs among others.
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By Neil Wilson, investor strategist at Saxo UK
