- Stocks extend last week’s losses
- Oil prices race past $100 as Iran’s neighbours turn off the taps
- Sign of cracks in US labour market compound concerns
- Recap on basic investing principles
- Earnings previews: Sunbelt (Ashtead) and Persimmon
Derren Nathan, head of equity research, Hargreaves Lansdown:
“Save for the Vix which measures volatility in the US market, investors in global stock markets are staring at red screens this morning after a weekend of intense hostilities in the middle east. By virtue of their time zone, Asian markets were the first to take a step down in reaction to Monday morning’s oil price spike which at one point had climbed over 20%. Donald Trump’s been clear around his intention to drive regime change in Iran, and also that the succession of Ali Khamenei by his son Motjaba would be unacceptable. Motjaba Khameini’s appointment yesterday as the country’s supreme leader will do little to reassure markets that an end to the violence is in sight. The FTSE’s expected to lose around 1% at the open, a similar loss to that seen on Friday, with S&P 500 and NASDAQ futures both down around 1.6%.
At the time of writing some of the froth had some off the top with Brent Crude trading at around $108 per barrel down from earlier highs of $116. Oversupply in the global oil markethas been a dominant theme in recent months, but a 70% production cut at Iraq’s three main oilfields, and a sharp fall in output from Kuwait could be followed by similar moves in the UAE and Saudia Arabia as storage reaches capacity. Until the Strait of Hormuz can be securely re-opened producers will be reticent to turn the taps back on, and even if that decision is made, there can be a significant lag until oil and gas wells return to full flow.
Friday’s surprise drop of 92,000 in US non-farm payrolls was another fly in the ointment. Ordinarily signs of a slowing labour market can provide support to more doveish member of the Fed but recent events have put inflation worries back on the table with markets now not pricing in a further rate cut till September at the earliest. That’s also been reflected in a rise in treasury yields following the initial strikes on Iran with 10-year yields rising another 6 basis points today to 4.2%. The US currency has also responded with the dollar having recouped nearly all of its earlier year-to-date losses.
The waning optimism for the path of lending rates is also challenging gold’s safe-haven status. The yellow metal is still likely to play a part in diversified portfolios but the near-term outlook for precious metals and other asset classes looks increasingly unpredictable. Rather than trying to second guess geopolitical outcomes and market gyrations, investors would be wise to stay invested in a diverse portfolio that aligns with their financial goals. Portfolios with exposure to different asset classes, geographies and styles will be most robust against uncertainty. For those wondering what to do next this weekend’s article, The value of… doing nothing by HL’s Chief Investment Strategist Emma Wall is well worth a read.
Earnings to keep an eye on this week include third quarter results from Sunbelt Rentals (recently rebranded from Ashtead). Growth for its industrial equipment rental business has been hard to come by of late, but comparatives are getting easier. Higher for longer interest rates and oil prices have the potential to weigh on demand from the construction industry but big-ticket projects like data centres and semiconductor fabs remain a key source of support.
Persimmon on the other hand is almost entirely leveraged to demand for new-build homes in the UK. The housebuilder is reporting its annual results tomorrow, with January’s trading update pointing to stable sales rates and a 4% uplift in average selling prices. The 2026 outlook’s likely to be the key driver of sentiment, with current guidance of £461-487 million of pre-tax profit implying healthy growth. Investors will be anxious to hear whether geopolitical unrest and with it uncertainty around the path of mortgage rates is having an impact on home buyers.”
