- Trump to decide on military involvement within two weeks.
- FTSE 100 and European stock markets set to open strongly
- Markets price in August rate cut after Bank of England holds at 4.25%
- UK consumer confidence stages fragile rebound.
- But May retail sales fall 2.7%, the largest fall since December 2023
- Brent Crude steady at $77 per barrel, a six-month high
Derren Nathan, head of equity research, Hargreaves Lansdown:
“The chances of the immediate involvement of US forces in the Israel-Iran conflict have receded after Donald Trump said he would make a decision whether to attack Iran’s nuclear development facilities ‘within the next two weeks’. Diplomatic efforts to de-escalate the situation are also in train with a delegation from the UK, France and Germany set to hold talks with Iranian officials in Geneva later today.
That pause looks to have curbed investors risk aversion with both FTSE 100 and European stock futures pointing to a strong open today. London’s flagship index closed down a touch yesterday despite a closer than expected split in the Bank of England vote over interest rates. The Monetary Policy Committee stuck to the play book with a hold at 4.25%, but three of its nine members voted for a 25-point cut.
Market expectations of two further rate cuts this year are unchanged with the expectation pointing to initial cut in August. But the banks comments around heightened unpredictability, softening labour demand and a weak outlook for GDP growth of 0.25% for each remaining quarter of the year kept a lid on enthusiasm on the day.
The latest GfK consumer confidence index improved by two points but remains in negative territory at -18. Consumers views on their personal finances were unchanged but confidence on the economic outlook has improved. But easing wage growth and the inflationary impact of recent fuel price rises could signal a tighter squeeze on shoppers as the year progresses.
The slight uptick in confidence may do little to quell retailers’ nerves as shopkeepers digest today’s May retail sales figures which showed a 2.7% drop in volumes, much worse than the -0.5% forecasted. This was the worst read out since December 2023with all sectors posting declines, with food stores leading the way.
Brent crude oil prices remain at six-month highs of around $77 as traders assess the rapidly evolving crisis in the Middle East. For now, Iranian oil exports look to be unaffected with a report by Kpler suggesting tanker loadings had reached 2.2m barrels per day so far this week, a five-week high. Price support looks firm on the demand side after US crude inventories plummeted by 10.1m barrels compared to a forecasted fall of just 0.6m.”
