Susannah Streeter, senior investment and markets analyst, Hargreaves Lansdown:
‘’The bunting has stayed in position for the FTSE 100 and FTSE 250 with a feel good factor rippling through the London market, as its resilience in the face of continued worries about inflation come to the fore. Industrial and utility stocks pushed the overall index higher in early trade while commodity and energy stocks were also on the front foot. A barrel of Brent crude has marched above $120, helping push up BP and Shell shares. The latest trigger to push up prices appears to have been Saudi Arabia’s decision to increase prices for its crude sales next month, despite the pledge by OPEC the oil cartel to increase production by 50% in July and August. With Western powers sending long range missiles to Ukraine, it underlines the entrenched state of the war which is adding to supply concerns in the market, particularly given the compromise deal which has been reached by the EU on a Russian oil embargo.
Demand energy is expected to rebound in China with more covid restrictions being lifted particularly in Beijing, and although a dramatic snap back in economic growth isn’t forecast, the recovery from lockdowns is likely to fuel worries about whether there will be enough oil supplies to meet appetite in the world economy.
The march upwards in the oil price will also do little to calm the jitters about the spiralling higher of prices on the wider financial markets. Shreds of positive news about the strength of the US economy, in terms of more buoyant than expected jobs numbers on Friday, touched fresh nerves about the Federal Reserve stepping on the pedal harder to rein in inflation. The volatility we’ve seen over recent sessions on Wall Street is set to continue as traders are on tenterhooks for any data which could provide a clue as to just how rapidly the drug of cheap money will be withdrawn.
The pound has edged up ever so slightly, but is still languishing at around two year lows. An expected vote of confidence in Prime Minister Johnson appears to be the least of traders’ worries, as they continue to assess the UK’s fragile economy, and just how it’ll withstand the growing wave of higher prices and monetary tightening. After the diversions of the Jubilee celebrations, a fresh round of belt tightening is likely, given the ongoing cost of living crisis, so more domestically focused consumer stocks, which don’t benefit from big brand pulling power, are facing uncertain times ahead.’’