Oil extends six-day rally on supply fears

Summary

Oil prices rose for a sixth consecutive session as continued fighting in Iran and disruption to shipping increased supply concerns. FTSE 100 futures pointed to a weaker open on Wednesday, while S&P 500 futures edged higher after recent gains on Wall Street. The yen weakened sharply to 159.45 per US dollar, giving back much of the rebound triggered by last week’s coordinated US-Japan intervention. The Australian dollar remained in focus after the Reserve Bank of Australia kept interest rates unchanged with a hawkish stance.

Equities

The FTSE 100 closed 0.17% lower at 10,844.19 on Tuesday, extending its decline for a second session. The FTSE 250 performed better, rising 0.22% to 24,799.75, while the FTSE 350 insurance index fell 2.5%.

Spirax was the biggest faller in the FTSE 100 on Tuesday, dropping 5.6%. The valve maker reported improved first-half results but maintained its full-year forecast, disappointing investors who had expected a stronger outlook.

Legal & General fell 3.1% on Tuesday after UBS and Goldman Sachs downgraded the insurer to “sell” from “neutral”. UBS pointed to concerns including high valuations, lower margins in the company’s pension risk transfer business and a declining solvency ratio.

BP closed 1.8% higher on Tuesday and Shell gained 2.2% as oil prices rose following another setback in US-Iran negotiations over a peace agreement and the reopening of the Strait of Hormuz. Genuit dropped 5.6% in the FTSE 250 after its earnings were affected by the Middle East conflict and wet weather.

Wall Street also closed lower on Tuesday. The S&P 500 fell 0.32% to 7,728.20, the Nasdaq dropped 0.60% to 26,445.45 and the Dow Jones Industrial Average declined 0.34% to 53,791.85.

Alphabet shares fell 3.8% on Tuesday, while Amazon lost 2.1%, putting pressure on both the S&P 500 and Nasdaq. SpaceX dropped almost 4%, although alternative asset managers moved sharply higher following recent plans to finance artificial intelligence infrastructure.

Apollo Global rose 6.2% on Tuesday and Blackstone gained almost 4% after the companies were included in a group of financial institutions partnering with Nvidia on compute-financing platforms aimed at mobilising more than $500 billion.

Sportswear company On fell 20.3% in US trading on Tuesday after second-quarter sales missed expectations. Venture Global dropped 7.3% after the LNG producer’s second-quarter revenue came in slightly below forecasts, while Jabil climbed 5.9% after UBS upgraded the electronics manufacturer to “buy” from “neutral”.

Forex & Commodities

The US dollar edged higher early on Wednesday, with the dollar index rising to 99.89 ahead of US consumer price inflation data later in the day. The euro slipped to $1.153, while the British pound was unchanged at $1.351. The Japanese yen weakened to 159.4 per dollar, its softest level this month, despite recent US-Japan intervention, while the Australian dollar fell to $0.7056 and the New Zealand dollar declined to $0.5866.

Spot gold rose early this morning to $4,400 an ounce, while silver climbed to $65.30. July US inflation figures are due later today, with consumer prices expected to rise 0.1% from June and annual inflation forecast to ease to 3.4% from 3.5%.

Expectations for the Federal Reserve’s September meeting remain evenly divided. Futures markets early on Wednesday indicated a 50% probability that rates will remain unchanged and a 50% probability of a quarter-point increase. Boston Fed President Susan Collins has said she would support a September increase if inflation remains high, while Chicago Fed President Austan Goolsbee said on Tuesday that excessive inflation remains the central bank’s main concern.

Oil prices extended their gains early on Wednesday. Brent crude rose to $89.63 a barrel and US West Texas Intermediate reached $83.91, after both benchmarks recorded their highest closes since July 31 on Tuesday. Shipping through the Strait of Hormuz fell to six vessels on Monday, compared with 125 to 140 vessels a day before the war, while industry data indicated US crude inventories rose by 9.1 million barrels last week.