- Flat start to the week for the FTSE 100.
- Tensions remain high in the Middle East, pushing up Brent Crude.
- Shell flags that refining profit margins dropped sharply in the third quarter.
- Dollar finds strength following strong US jobs report.
- House prices continue to march upwards according to Halifax.
Susannah Streeter, head of money and markets, Hargreaves Lansdown:
‘’It’s been a lacklustre start to the week for the FTSE 100, which has been flat in early trade. War in the Middle East is understandably playing on minds. The threat of a further escalation is keeping upwards pressure on oil prices. On the first anniversary of Hamas attacks, which sparked the war in Gaza, there still appears no end in sight for the conflict, which still risks spreading further across the region. Brent Crude has gained ground again, trading above $78 dollars a barrel, following the largest weekly rise in over a year. Supply worries continue to swirl, even though OPEC+ nations have signalled they will go ahead with planned production increases. The perceived strength of the US economy is leading to expectations that there will be greater demand for energy across the US, helping offset continued weakness across sectors in China.
Energy giants have been making gains over the past week, as oil prices have headed higher. However, Shell’s update this morning has indicated that it’s not been firing on all cylinders. Refining profit margins dropped sharply in the third quarter, compared to the previous one. The energy major has also highlighted that earnings from oil product trading has also come in lower. However, it’s also revised its outlook for upstream oil and gas production, and looks broadly neutral overall compared to previous guidance.’’
The dollar has been flexing its muscles again, as hopes are rising that the US will avoid a recession and that a soft landing will be achieved, despite the financial pain of high borrowing costs. The stronger than expected US jobs report on Friday has erased expectations that there could be another super-size rate hike from the Federal Reserve next month, which has pushed up the dollar against a basket of currencies. The pound has slipped further away from the multi-year highs it reached in September against the greenback and is trading around $1.31. The yen’s weakness in the face of a resurgent dollar has helped propel the Nikkei sharply higher, with exporters looking poised to benefit. Eyes will be trained on the minutes of the Federal Open Market Committee meeting for any further clues about the interest rate dot plot. Depending on how cautious policymakers appear, we could see bets increase that the Fed could even hold off from a rate cut in November. But, at the moment, that looks highly unlikely, and markets are pricing in a 96% chance that there will be another reduction.
When it comes to the Bank of England, another interest rate cut in November also looks bolted on, with a 92% probability priced in by the markets that there will be another 0.25% reduction. With lower borrowing costs eyed on the horizon, it’s given homebuyers more confidence. Halifax data shows that prices headed higher again in September, by 0.3% for the third month in a row. This confirmed pattern of rising prices hasn’t had much impact on the housebuilding sector. Although better mortgage deals coming onto the market may help affordability a little more, many potential movers are still weighed down by much higher borrowing costs than they are used to, which will limit their options. ‘’
