Market report: Spring in the step of the Footsie amid hopes for Middle East peace deal
Susannah Streeter, chief investment strategist, Wealth Club: ”There’s a spring in the step of the Footsie as hopes are kept alive about the prospects of a resolution to the crisis in the Middle East. There’s a dose of cautious optimism still swirling, but it’s losing its potency after fresh US attacks in Iran.
The limited nature of the military action, targeting missile launch sites and mine-laying boats, may help assuage worries the move could re-ignite hostilities. For now, a ceasefire remains in place, and although it’s clearly fragile, even before these strikes both sides made it clear a deal wasn’t imminent.
So, given the fresh uncertainty, oil prices have headed higher again after a sharp fall over the weekend. Brent crude, the benchmark, is back trading above $98 a barrel as speculation fills the diplomatic void. Even if Iran and the US can get back to the table quickly and negotiate a longer-term deal, it’ll take many months to get supplies flowing freely again from the region, and output will be constrained by the damage to energy facilities.
Already, the inflationary effect of the war is showing up on the shelves here. UK shop price inflation increased 1.2% year-on-year last month, up from 1.0% in April, which had been the slowest growth in four months. Prices are rising more quickly than expected, with an expectation of 1.1% for April. But the insidious effects of higher shipping costs are feeding through. Non-food prices rose 0.5% year-on-year, mainly driven by rising costs for furniture and beauty products. The price of other commodities needed for the manufacture and distribution of goods – from energy to plastics – has shot higher and is likely to continue to force retailers to push up prices in months to come, given there’s only so long they can absorb costs. The headline rate would have been higher, but competition in the grocery sector helped drive down food inflation to the lowest level in a year. With such intense rivalry between supermarket chains, it may help keep a lid on higher prices, which are expected to seep in later this year. It also shows why retailers were so incensed by suggestions of voluntary price caps on essential goods, when already margins are so tight.
The warmest May night on record is likely to prompt a fresh wave of purchases to help keep households cool in the heatwave. Fans, paddling pools, blackout blinds and ice cube trays will have been filling up real and virtual baskets and could help boost sales at household goods retailers. It could help boost sales at DIY firm Kingfisher, the owner of B&Q and Screwfix, as customers are likely to have been giving their gardens a spruce up to prepare for the heatwave. Total sales were up 1.4% for the three months to the 30 April, even though a late start to Spring had an impact on demand. So, there may be hopes a renewed desire for makeovers and summer essentials could keep tills ringing.
The hot bank holiday is likely to have also helped boost the fortunes of bars and pubs with gardens and terraces, as people celebrated hot days off. It also bodes well for staycation bookings. The prospect of higher air fares and disrupted routes is still playing on the minds of holidaymakers, and with Britain basking in the sunshine, it could prompt a raft of bookings for UK destinations this summer.’’