Market update: Investor sentiment creeps higher after oil supply fears ease slightly
Susannah Streeter, chief investment strategist, Wealth Club: “The FTSE 100 has made another tentative step in early trade to recover losses sparked by the outbreak of war with Iran. Stocks on Wall Street are also set to resume a rally as investor sentiment recovers.
Iraq has clinched a deal with Turkey to resume exports through the port of Ceyhan, instead of using the dangerous Strait of Hormuz. This is leading to hopes that a severe, prolonged oil shock will not materialise, as more crude supplies are able to filter out of the region through other routes, while Iran continues to allow tankers heading for China, India and Pakistan to use the Strait. Hopes have also risen slightly for more diplomatic moves to come, which could force a faster end to the fighting.
These developments have helped to propel a rally in travel-focused stocks in early trade. Airlines gained ground, with EasyJet and British Airways owner IAG near the top of the leaderboard, and Rolls-Royce also flew higher. It services engines for long-haul flights and benefits from increased hours in the air.
There’s a lot riding on the mood music from central banks this week. The big worry has been that policymakers will be ultra-hawkish and suspend interest rate cuts for a significant period. Expectations have lifted slightly that the attitude may be a little more positive, and that inflationary risks could end up being more temporary. Shares in housebuilders have shifted higher amid hopes that some better mortgage deals could be on the horizon, after lenders pushed up rates in a conflict-induced move. Nevertheless, these are small moves higher in comparison with the losses over the past week, as the situation in the Middle East still remains highly complex.
The solidarity among European leaders is growing, with the Irish Taoiseach showing support for Keir Starmer at his meeting with President Trump in Washington. Norway’s Prime Minister told me at a key shipping event in Oslo why Norwegian forces could not support US troops in the war in Iran – because they are needed to counter threats in northern waters and simply don’t have the capability for the type of operations demanded in the Strait of Hormuz. He also singled out deeper relationships in terms of defence procurement with the UK and Germany as models to follow to beef up security if nations are forced to rely on a European pillar within NATO for security. Defence budgets will have to swell much further to significantly enhance current military capacities.
Faced with a widening wall of resistance to becoming entrenched in a conflict with no international mandate, hopes are rising that there will be a swifter push towards a resolution to the Iran war. But it’s still super-fraught with difficulty. Iranian forces are still attacking US allies in the region, despite the killing of key architects of their military campaign. Air power can only go so far, and boots on the ground look set to be needed to fully take out infrastructure along the key Strait of Hormuz to enable safer passage of ships.”