Market update: Footsie falls amid fresh rally in energy prices and tariff threats
Susannah Streeter, chief investment strategist, Wealth Club: ”The big swings in markets are continuing as investors assess highly unsettling developments in the Middle East and the likely duration of conflict with Iran. The FTSE 100 has moved from optimism to fresh pessimism as a fresh rally in energy prices sees inflationary concerns resurface. Fresh downbeat sentiment is also washing over European indices. Asian markets rebounded sharply, but US futures have turned negative as the unpredictable situation continues to evolve.
The Trump administration has added another layer of uncertainty to the prospects for the global economy by indicating that a hike in blanket global tariffs could be imposed as soon as this week. After the US Supreme Court threw out the first tranche of duties as unconstitutional, fresh 10% tariffs were imposed via an alternative legal route. Treasury secretary Scott Bessent has indicated that the rate is likely to rise to 15% as soon as this week. The months of tortuous negotiations which culminated in multiple bilateral deals around the world now appear futile, and companies importing into the US are reassessing the implications as they also attempt to deal with volatile energy prices.
Oil prices have headed sharply higher again, trading around $84 a barrel, the highest level since late January. The decision by China to impose a curb on the export of diesel and petrol has added to energy supply concerns, amid the ongoing upward pressure caused by the severe disruption to crude shipments through the Strait of Hormuz. President Trump’s promise to escort tankers and backstop insurance does not appear to have eased concerns. However, industry data indicating that crude stocks in the US rose by 3.5 million last week, more than expected, is limiting gains to some extent.
The heat has turned up under gas prices again, with the global rally taking off once more. The world’s largest LNG export plant in Qatar remains out of action and the key supply route from the Gulf is disrupted. The surge in gas prices is already being felt by energy customers in the UK, with big providers pulling some of the cheaper fixed-price deals. Household budgets could take a further hit, given that hopes for interest rate cuts are fading. Higher energy prices look set to push up the headline rate of inflation, keeping central bankers wary about voting for further interest rate cuts.
Market expectations for rate reductions from the Bank of England and the Fed are rolling back, pushing up yields on gilts and Treasuries. This, in turn, piles fresh pressure on governments because, if they are sustained at this level, borrowing costs will rise and the burden of national debt will increase.”