Market update: Investors stay wary over Iran and the UK focuses on solar and nuclear
Susannah Streeter, chief investment strategist, Wealth Club: ‘’Financial markets are oscillating as investors try and make sense of the conflicting signals indicating how long the war with Iran will last. After Monday’s chaotic ride, caution is taking hold again, with London’s Footsie opening flat. Mining stocks are on the back foot as precious metals prices struggle to gain ground. Having taken profits after the record rally in gold and silver prices this year, investors appear to be seeking out other assets which offer returns amid the volatility.
Brent Crude has taken a firmer grip above $100 a barrel again after Iran dismissed President Trump’s claims of productive talks as ‘fake news’. While the US has pressed pause for now on the threat to bomb Iran’s power networks, Israel is still striking targets across the country and in Lebanon. The world is watching and waiting to find out if an escalation or de-escalation is the next step, with governments scrambling to limit the damage on economies.
In the UK, Chancellor Rachel Reeves is set to outline which groups may benefit from targeted support, as households brace for a sharp rise in bills in the months to come. As another cost-of-living crisis looms, blanket help to bring down energy costs simply doesn’t look viable given the stretched public finances and it’s likely lower-income groups will be first in line.
The government for now appears to be resisting calls for more North Sea drilling and doubling down on its strategy to cut the dependence on fossil fuels. This is despite another warning from industry lobby group Offshore Energies UK that without more domestic production, the country risks becoming reliant on imports “at a time of rising global instability”. Instead, the government’s focus today will be on the government’s new nuclear strategy aimed at fast tracking new power stations and small modular reactors. The regulatory framework will be rewired to solve disagreements faster, improve supply chains and avoid cost overruns which have plagued the industry.
The government is also planning a green home revolution, by forcing housebuilders to install heat pumps and solar panels in new builds. The detail of the planned rules appears to have unsettled housebuilders, which have fallen back in early trade. While there appears to be general support for renewable power integration, the industry has called for realistic targets rather than the current requirement, which requires solar panels to cover 40% of a building’s footprint “at full efficiency and capacity.”
Ministers face a tricky balance of pledging enough immediate support to avoid fuel poverty and stop further erosion of political support, while not overdoing it and causing a fresh sell-off in the gilt market, given the current nervousness among investors in UK government debt. At the same time, they are trying to galvanise homeowners and housebuilders to invest more in renewables to cut future bills, at a time when budgets are squeezed. Sticking with policies for the benefit of society in the long term is an even greater challenge at a time of crisis.”