Market Report: Oil surges as Middle East tensions flare, dragging markets lower
Susannah Streeter, chief investment strategist, Wealth Club: ”A surge in oil prices has sparked worries about persistent inflation, with the Middle East tinderbox reigniting. Downbeat sentiment is spreading, with the FTSE 100 sharply lower and European indices deep in the red. The US military has attacked dozens of targets in Iran in retaliation for strikes on three tankers in the Strait of Hormuz. There’s a real sense of déjà vu unfolding, with the US and Iran appearing to take significant steps towards peace, only for the illusion to be shattered once again. However, even though Brent has surged by more than 6% to trade at around $76 a barrel, reflecting this unwelcome turn of events, it’s still nowhere near the levels seen during previous periods of conflict. There does seem to be some expectation that tensions will eventually calm again, while the ramp-up in oil production is helping to keep a lid on concerns about a fresh energy crunch. Nevertheless, it’s a major setback just as nations around the world had been breathing a sigh of relief that a longer-term resolution looked to be within reach.
It’s in this tense environment that investors are waiting for the minutes of the last Fed meeting to be released. Expectations of rate cuts had been reined in a little after the weaker-than-expected jobs report last week, but now that the cards are being thrown up in the air again in the Middle East, there’s likely to be even closer scrutiny of more hawkish attitudes around the table. The minutes are likely to show that policymakers will remain driven by the data, rather than personal convictions or external pressures. However, with energy prices at risk of ramping higher, they’re also expected to reinforce the message that any fresh inflationary shock could delay the path towards lower interest rates, keeping the Fed firmly in wait-and-see mode.
Fresh geopolitical uncertainty risks denting the confidence of holidaymakers once again, but this worry hasn’t thrown Jet2 shares off course. They’ve risen more than 12% this morning as investors have cheered results showing super-strong summer demand, with capacity 7.7% ahead of last year. Its strategy of focusing on value is proving a powerful draw, with cost-conscious consumers still prioritising their annual escape despite lingering global tensions. Bookings are running 7.1% ahead of this point last year, while fuller planes and targeted price investment are helping to keep momentum flying. Hitting the top end of profit guidance has reinforced confidence that Jet2’s nimble operating model is helping it navigate choppier skies, and the announcement of a fresh £250m share buyback has provided an extra tailwind for the shares.”