Market update: Roar of recovery amid Iran hopes and OpenAI’s mega fundraising round
Susannah Streeter, chief investment strategist, Wealth Club: “There’s been a roar of recovery on equity markets as investors cling to high hopes of an end to the war with Iran in weeks. President Trump is blinking furiously faced with painfully high energy costs, which risk derailing Republicans’ chances at the midterm elections, and is signalling a rapid wrap-up to the conflict. The FTSE 100 has rocketed higher, surging by 1.8% in early trade as optimism reverberates about an end to the war. It follows sharp rebounds in markets in Asia, with the Nikkei gaining 5.2% and South Korea’s Kospi jumping 8.4%.
Relief is showing up in oil prices, with Brent crude, the benchmark, dropping below the $100 a barrel mark. However, at this level crude is still around 50% higher than in mid-February before tensions with Iran seriously ratcheted up. This signals that scepticism still remains about Trump’s claims of progress, and worries persist about how extraction from the conflict is still set to be complex. Even if the war ends in weeks, the damage wreaked to energy facilities in the region will take years to repair. Iran is also now flexing more control over the Strait of Hormuz, planning tolls on ships, so freight costs will rise even as it reopens.
So, despite today’s relief wave on markets, deep problems remain and ministers are trying to work out how to offer a salve to consumer businesses. Keir Starmer is under pressure to deliver, so his briefing today isn’t just focusing on the military capabilities the UK is sending to the Gulf, but the support he is sending to households amid the crisis. With energy bills for those not on fixed tariffs set to shoot up in July, prices at the pumps marching higher, mortgages and potentially rents set to rise, and food prices likely to go up, households are bracing for a toxic shock of higher costs. However, the government’s hands are tied to some extent by stretched public finances. It has to keep investors in government debt on side to prevent gilt yields rising and borrowing costs shooting higher. So, it’s likely to be poorer households, who spend a greater portion of their budgets on essentials, who will be first in line for support.
OpenAI’s mega fundraising round, which gives it the whopping valuation of $852bn, has pumped optimism into the tech sector. The enthusiasm from private investors and institutions to own a slice of OpenAI, before any potential IPO, is like a rising tide lifting all ships. This is the largest funding round ever completed and is larger than any stock market flotation. The enthusiasm from private investors and institutions to own a slice of OpenAI, before any potential IPO, is like a rising tide lifting all ships. It’s another example of the early opportunities investing in private markets can bring before firms make a public appearance on exchanges.
It’s not a top day for Topps Tiles. Shares have dropped sharply after the extent of the company’s problems became clear, forcing it to announce the closure of 23 stores this year. It’s focusing on a small footprint of outlets which are more profitable, shrinking operations to become leaner and more efficient. However, the radical restructuring has unnerved investors, and the outlook looks tricky. Higher payroll costs aren’t going away, freight costs are likely to rise amid higher energy costs, and household confidence has taken a battering. The DIY projects Topps Tiles relies on for a steady stream of revenues look set to shift lower on priority lists this year, as households grapple with a new cost-of-living crisis and put projects on hold.”