Market report: Oil races higher amid high tensions while retail sales stumble
Susannah Streeter chief investment strategist, Wealth Club: ”High caution reigns on markets at the end of a volatile week, with a tech rout severely testing confidence and a worsening situation in the Middle East keeping inflation concerns high. The Footsie struggled to keep its head above water in early trade. Although rising crude prices have lifted energy giants, the mood is guarded, especially with confidence among consumers falling.
The summer bounce in UK retail sales has well and truly faded with conditions for shopping far from clement. Sales fell 0.4% a much sharper decline than expected as there was little to nudge cautious consumers from their wary stance. Households are trimming budgets cutting back on non-essential items, hurting clothing and footwear and home wares purchases in particular. The unseasonably warm weather meant new Autumn and Winter ranges were hard to shift but high fuel prices are also doing damage to confidence. Consumers are braced for painful energy bills to land, and many will be eyeing the projections for interest rate hikes nervously. The environment doesn’t bode well for the so-called golden quarter, with the run-up to Christmas so crucial for so many retailers. It’s highly likely it will be a promotion heavy period, to try and increase footfall on the high street and rev up online orders and persuade shoppers to loosen the purse strings.
Unfortunately, there appears little respite ahead at the pumps given that crude prices have ratcheted up even higher amid high geopolitical tension. Brent Crude, the benchmark has hit $114 a barrel, back at the highest level since May. Fears are rising that American and Israeli forces will be ordered to launch strikes on Iran’s energy infrastructure after the US mid-term elections, with plans reportedly being drawn up. At the same time, the attacks on Saudi Arabia’s facilities by Houthi rebels have intensified this week, and for ships attempting to cross the Strait of Hormuz, it’s still a dangerous journey, with projectiles still be fired. Ukraine’s bombardment of Russian diesel refineries is adding to supply concerns. The deteriorating situation is once again fanning inflation fears, with companies unlikely to keep absorbing higher energy and freight costs. The longer the conflicts rage, the greater the chance of higher prices becoming more embedded in the economy, and that’s why bets have increased on central banks hiking rates more rapidly.
With borrowing costs set to rise, making the cost of capital more expensive, it’s intensifying the focus on the huge AI spend being deployed. Investors have turned highly nervous again about the cost of the buildout, and there’s likely to be little comeback today for tech stocks which have been severely tested this week. The Nasdaq Composite tumbled 2.6% to 26,009 and the S&P 500 fell 1.2%. Futures markets point to a muted start for Wall Street with few sparks of hope around to ignite a meaningful recovery.”