Market update: Oil prices surge amid Iran tensions while AI spend soars
Susannah Streeter, chief investment strategist, Wealth Club. ‘’The Footsie is heading up towards record levels, as geopolitical tensions make the defensive nature of the index more attractive. The flight to safe havens is intensifying with gold and silver hitting fresh records, amid concerns about fresh conflict erupting. Mining companies have made fresh gains, amid the insatiable demand for precious metals.
With the Middle East tinder box looking set to ignite again, oil prices have moved sharply higher, lifting shares in listed energy giants. US naval and air forces are building up in the Gulf as the US has ratcheted up threats on Iran. President Trump has warned that the US is ready to act, if Tehran does not reach a nuclear agreement. Given that similar build ups were a precursor to the assault on Venezuela and the previous strikes on Iran, there’s an expectation that action is imminent. So, supply concerns are swirling given that such conflict would disrupt crude shipments from Iran and across the region, particularly if the Strait of Hormuz, a key route is made impassable. The benchmark Brent Crude has hit the highest level since September, flirting with $70 dollars a barrel. The weaker dollar is also partly behind the move in crude rising higher, given that it’s denominated in the currency and so makes oil more attractive for buyers.
The AI juggernaut is still on the move, with big tech pouring eye watering sums into the technology, but cracks are opening in the road ahead. Microsoft’s mismatch between soaring AI spend and slower cloud growth unnerved investors, with shares falling sharply after-hours and in early trading today in Frankfurt. However, Meta shares took off as results exceeded expectations, as it intensified its artificial intelligence drive. The bar has been set high, with investors needing to see real returns from the mega bucks push into the technology. The laggards look set to be punished and the winners richly rewarded. As confidence overall in the AI spend appears to be holding up, given the latest slew of tech results, the S&P 500 looks set for another spurt into record territory in early trade.’’