Brent oil climbs as Warsh testimony sharpens Fed rate focus

Summary

Brent oil climbed to its highest level since mid-June as renewed US strikes on Iran and potential shipping fees through the Strait of Hormuz increased supply concerns. The US dollar remained firm ahead of Federal Reserve Chair Kevin Warsh's congressional testimony, while the yen stayed under pressure despite comments from Japan's finance minister on possible changes to pension fund investment strategy. Asian equities fell sharply, European futures pointed lower, and Chinese stocks outperformed after stronger-than-expected export growth driven by AI-related demand.

Equities

The FTSE 100 finished flat at 10,498.3 on Monday as a strong rally in energy shares offset weakness in banks, mining and travel stocks. The FTSE 250 edged 0.1% higher, with rising oil prices following renewed US-Iran tensions supporting oil producers while investors looked ahead to a busy week of economic data and company earnings.

Vodafone closed 5.5% higher on Monday, extending Friday’s sharp gains after French billionaire Xavier Niel confirmed plans to buy a stake worth almost $6 billion from UAE telecoms group e&. Watches of Switzerland climbed 4.2% after reports that the luxury retailer has held discussions in recent months over potential take-private offers.

PageGroup surged almost 20% on Monday after the recruiter reported second-quarter gross profit ahead of market expectations. Housebuilders also performed well, rising 2% following reports that a future UK government could revive the Help to Buy scheme for first-time buyers. In contrast, Plus500 fell around 15% after leaving its full-year guidance unchanged, while banks lost 0.8% and precious metals miners dropped 2.4% as gold prices weakened.

US markets closed lower on Monday, with technology shares leading the declines. The S&P 500 fell 0.79%, the Nasdaq dropped 1.55% and the Dow Jones Industrial Average slipped 0.26%, although gains in energy stocks limited losses in the blue-chip index.

Chipmakers came under heavy pressure late on Monday. Intel fell 12.6%, while Marvell Technology and SanDisk also posted steep declines as investors continued to reassess valuations across the semiconductor sector. Shares in South Korean memory chip producer SK Hynix fell 9.3% in US trading after jumping more than 12% during Friday’s Nasdaq debut.

Attention is now turning to the start of the second-quarter US earnings season. JPMorgan Chase, Bank of America, Goldman Sachs, Citigroup and Wells Fargo are all due to report on Tuesday, with investors also watching Federal Reserve Chair Kevin Warsh’s congressional testimony and the latest US inflation and retail sales figures for further signs on interest rate expectations. Analysts currently expect S&P 500 companies to deliver annual earnings growth of 23.7% for the second quarter, up from forecasts made at the beginning of April.

Forex & Commodities

The US dollar was broadly steady early on Tuesday as investors waited for June inflation data and Federal Reserve Chair Kevin Warsh’s first congressional testimony. The dollar index eased to 101.2, while sterling rose to $1.336 and the euro strengthened to $1.139.

The Japanese yen edged higher to 162.3 per dollar early on Tuesday but remained close to 40-year lows. Traders stayed alert for possible intervention after Japan’s finance minister said the government could consider changes to state pension fund allocations if market conditions shifted sharply, although officials played down the prospect of an immediate review.

The Australian dollar climbed to $0.6934, while the New Zealand dollar rose to $0.5791 as markets increased expectations for further domestic rate rises. Bitcoin advanced to $62,780, while ether moved up to $1,788.

Spot gold rose 0.8% to $4,031 early on Tuesday after touching a two-week low earlier in the session. The metal had fallen about 3% on Monday, its steepest daily decline in more than a month, as higher oil prices strengthened expectations that US interest rates could rise again.

Brent crude gained 2.3% to $85.20 a barrel early on Tuesday, while US West Texas Intermediate rose 2.4% to $80.05. Brent had surged 9.6% on Monday after the US reinstated its naval blockade of Iran and tanker traffic through the Strait of Hormuz fell to a two-month low.