Market report: Oil prices surge after Israel attacks and investors turn cautious
- Brent crude jumps by more than 3% following attacks on Israel.
- Investors seek out safe-haven assets amid heightened geo-political tension.
- Rising oil costs set to inflame inflation worries.
- Government borrowing costs stay high amid concerns interest rates will stay higher.
- Labour Party pledges expected to revitalise planning laws and green investment.
- Metro Bank secures fresh funding to shore up its balance sheet.
Susannah Streeter head of money and markets, Hargreaves Lansdown: ”The shocking attacks in Israel have sent the price of oil soaring, as investors assess the potential for the conflict to disrupt supply in the Middle East, if other countries are drawn in. With the Israeli government warning of a long and difficult war, there are concerns that deep and incessant retaliative strikes on Gaza could potentially bring Iran into the conflict and have an impact on the flow of energy in the region. The strikes and incursions by Hamas have sent the price of a barrel of the benchmark Brent crude, up by more than 3%, to trade above $87 a barrel. It’s the latest surprise twist in the path of oil prices, with the commodity pushed upwards partly due to supply cuts by Saudi Arabia and Russia, then buffeted down by concerns about a weakening global growth outlook. This latest jump will fuel inflationary worries, at a time when investors are already jittery about the interest rates potentially staying higher for longer.
Nerves are showing signs of being frayed again just as investors had started to breathe a sigh of relief that the US might be heading for a softer landing, despite the high level of interest rates. Investors had cheered Friday’s jobs data given that it showed continued strength of the US economy, with a bumper payroll number, but also indicated that wage growth was moderating. With geo-political risk sharply in focus we’ve seen investors retreat into safe haven assets, with the dollar and the yen edging up, while gold has jumped 1%. The ultra-cautious mood is set to keep a lid on gains for the FTSE 100. While the higher oil price is set to support energy stocks, nervousness about a conflict escalating in the US is set to keep the index trading pretty flat in early trade.
The S&P 500 is expected to start the week in a downbeat mood, given the shocking eruption of conflict in Israel. The latest inflation snapshot, due out this week, is set to keep investors on edge. Although price rises are expected to have slowed again in September, any hint of stubbornness creeping back into the picture could lead to another bout of selling. Bond markets are closed for Columbus Day, so it’s unclear yet what impact events in Israel will have on Treasury yields, although concerns about fresh inflationary pressures from higher oil prices, may limit a move lower despite a search for safety by other investors.
Labour’s pledges at their party conference in Liverpool will come against a backdrop of considerable financial turbulence. Bond market vigilantes are hovering, ready to punish governments pledging to super-size spending without the means to pay for the splurge. Rachel Reeves is likely to style herself as a chancellor named Prudence, in her bid to take control over the nation’s finances. A commitment to charge up investment in green infrastructure, is expected to be central to her plan to boost growth, as well as an overhaul of the country’s planning regulations to pave the way for more housing to plug structural shortages in many parts of the country. Leader Kier Starmer is expected to focus on reducing the surgery backlogs in the NHS, by launching a new overtime scheme. While this only looks set to get temporary approval from unions, and is seen as a stop gap, if it does help cut waiting times for treatment there is a chance high levels of sickness may be reduced, helping more workers back into the labour market and potentially easing upwards wage pressures. A promise of a new approach to managing public sector services and fresh efficiencies drives alone won’t fund these promises, and Labour still will have a battle to win over sceptical voters who fear a fresh round of tax rises.
Metro Bank’s colourful façade is set to stay a feature of UK high streets now that it’s struck a deal with investors to shore up its finances. It needed to refinance a large loan by October 2025, and now its secured £325m in funding and has refinanced £600m in debt. Management is calling this a new chapter for the bank, but more developments are expected to trim down its loan book and put it on a firmer footing. It’s still in discussions about selling a big chunk of its mortgage book. This overall deal should help ensure the challenger bank can still expand, to widen its customer base with currently numbers 2.7 million. The costs of running its branch network, which offers much more extensive opening times and services compared to its rivals are high, and there is likely to be a significant amount of tinkering ahead to ensure the bank can stay profitable. ‘’
