Oil jumps to $117 a barrel on fears of escalating Iran war
The price of Brent crude oil jumped to $117 a barrel on Friday, its highest level since April, due to escalating exchanges in the Strait of Hormuz and rising conviction among oil traders that the Trump administration will intensify attacks following next week’s US midterm elections on 3 November.
The price of Brent crude has risen over 10% in October driven both by increasing Iranian attacks on tankers and Houthi incursions into Saudi Arabia. The latter led to the US recalling its diplomatic staff from the country. Oil prices now reflect the expectation of a more intensive phase of war in the Middle East.
The news added momentum to the ongoing ‘flight to safety’ by investors. Stock markets continued to sell off last week while UK and US government bonds added to their recent gains as investors sought safe-haven assets.
First Healey budget due on Wednesday
This week brings a critical test for the Andy Burnham government, and the UK bond markets, with the advent of Chancellor John Healey’s first UK Budget on Wednesday. Mr Healey faces a delicate balancing act, delivering on broad promises to reduce the cost of living while maintaining benefits and increasing defence spending. While any progress on the cost of living will be welcome, this will inevitably need to be funded by higher UK taxes.
Thursday next week also brings the Bank of England’s latest interest-rate decision. The bank remains the last major central bank not to have raised interest rates but with UK inflation last week jumping to 3.5% amid another month of increased government borrowing costs, a rate hike is expected.
The US Federal Reserve (Fed), the European Central Bank and the Bank of Japan all added 0.25% to interest rates in September. All three make their latest interest-rate announcements this week with each expected to keep rates on hold, at least for now.
Investors retrench ahead of key geopolitical and market events
Last Thursday’s announcement by Meta that it required “hundreds of billions” of further capital expenditure (capex) to fund its AI ambitions reignited lingering investor fears as to the cost of the AI buildout and when it might be recouped. The news triggered the tech-heavy Nasdaq 100 stock market index to fall almost 3% on the day.
Increasing investor nervousness has been a theme during October. Emerging stock markets have been especially hard hit due to their heavy tech component while Japanese shares have also notably suffered. The UK stock market meanwhile has benefitted from investors turning defensive, favouring shares in consumer staples and healthcare companies.
Investors have trimmed risk as they await a barrage of key geopolitical ‘pivot points’. These include next week’s US midterms, and its consequences for the Iran war, and four central bank decisions in quick succession. This week also brings earnings reports from tech giants Microsoft, Amazon and Alphabet with Anthropic’s IPO, slated for mid-November, also now being seen as a key test of investor AI appetite.
