Oil jumps as Hormuz tensions hit US stocks

Summary

Oil prices jumped more than 5% on Monday as hopes faded for a US-Iran agreement to reopen the Strait of Hormuz. The FTSE 100 closed lower, with Vistry plunging 12%, while Imperial Brands and British American Tobacco also fell sharply. US stocks edged lower, with Nvidia and Intel falling, while the dollar was steady and sterling traded around $1.351 early Tuesday.

Equities

The FTSE 100 fell 0.4% to 10,862.50 at Monday’s close, while the FTSE 250 also dropped 0.4% to 24,744.54 after reaching a record closing high on Friday. Both indices nevertheless completed a fourth consecutive weekly gain last week.

Vistry fell 12% on Monday after the Financial Times reported that credit insurer Allianz Trade could reduce the cover provided to the housebuilder’s suppliers by as much as 70%, potentially adding to pressure on its cash flow. Imperial Brands dropped 4.6% following a report that the tobacco group was preparing to cut thousands of jobs in key markets as part of efforts to reduce costs, while British American Tobacco fell 4.4%.

Coca-Cola HBC closed 4.8% lower on Monday after BNP Paribas downgraded the shares to “neutral” from “outperform”. Glencore gained 2.1% after Barclays raised its price target to 650p from 635p following the miner’s results last week, while Plus500 also climbed 2.1% after reporting higher first-half core profit as trading activity increased.

In the US, the S&P 500 slipped 0.06% to 7,753.12 at Monday’s close, following a record closing high on Friday. The Nasdaq fell 0.32% to 26,605.36 and the Dow Jones Industrial Average declined 0.11% to 53,976.04.

Intel shares fell 4.1% on Monday after the chipmaker announced plans to raise $15 billion through a share sale. Nvidia dropped 2.9% as a group of financial firms including Apollo Global and Blackstone worked with the chipmaker on a proposed $500 billion financing package for AI infrastructure development.

Forex & Commodities

The US dollar was broadly steady early on Tuesday, while the Japanese yen weakened to 159.2 per dollar as the boost from recent US-Japan currency intervention continued to fade. The yen has now given back nearly half of the gains made after intervention pushed it to a three-month high of 155.2 last week, although it remains stronger than the 40-year low of 164.0 reached before authorities stepped in.

The British pound edged higher to $1.351 early this morning, while the euro traded slightly lower at $1.154. The Australian dollar held firm at $0.7054, close to its strongest level since mid-June, after the Reserve Bank of Australia left its cash rate unchanged at 4.35%.

The RBA said another interest rate increase remained possible after raising rates by a total of 75 basis points since February in response to persistent inflation. In Japan, markets are pricing in just over a 50% chance of another Bank of Japan rate increase, while speculation over further currency intervention remains focused on whether the yen moves back towards the 160 level.

Spot gold slipped 0.3% to $4,375 an ounce early on Tuesday after climbing as high as $4,435 earlier in the session, its strongest level since 5 June. Attention now turns to Wednesday’s US consumer price inflation figures, followed by producer prices on Thursday and retail sales on Friday.

The upcoming inflation figures follow weaker US employment data last week, which prompted markets to reduce expectations for a Federal Reserve interest rate increase in September. The Fed left rates unchanged at its July meeting, although three policymakers voted in favour of an increase.

Oil prices were little changed early this morning after rising more than 5% on Monday. Brent crude slipped to $87.62 a barrel and US West Texas Intermediate eased to $82.08, with both benchmarks remaining near their highest levels since 31 July.

US-Iran negotiations remain stalled after President Donald Trump added demands for Iranian compensation to the conditions for an agreement. Oil and refined-product exports through the Strait of Hormuz averaged 3 million barrels per day in the week ending 7 August, down from 4.4 million barrels per day the previous week.