Oil Hits One Month High as Iran Tensions Rise

Summary

Brent crude reached a one-month high of $94.71 before easing to around $93.80 as the US prepared tougher sanctions on Iran, further reducing hopes of a deal to fully reopen the Strait of Hormuz. US Treasury yields also climbed again, with the 30-year yield reaching 5.25% despite expanded Treasury bond buybacks. Refinery constraints are adding to pressure on diesel prices, increasing concerns about renewed inflationary pressures.

Equities

The FTSE 100 rose 0.1% to 10,743.35 on Wednesday, while the FTSE 250 gained 0.3% to 24,643.52. UK inflation increased to 2.9% in July from 2.6% in June, in line with economists’ forecasts, while expectations remained that the Bank of England would leave interest rates unchanged in September.

Gold miners recorded some of the strongest gains in London on Wednesday as the gold price rose sharply. Fresnillo, Endeavour Mining and Pan African Resources all climbed more than 7%, while Oxford Nanopore Technologies jumped 14.3% after reporting upbeat half-year results.

Shell and BP both rose around 1% on Wednesday as oil prices increased for a fourth consecutive session amid continuing uncertainty over shipping through the Strait of Hormuz. Trainline fell 14% after Britain’s competition regulator opened an investigation into whether the company, Virgin Atlantic and RED Driving School were sufficiently transparent about total prices when customers made bookings.

Smith+Nephew dropped 3.8% on Wednesday after announcing that chief financial officer John Rogers would leave the medical products company for an external role. Rogers is stepping down after roughly two and a half years with the business.

In the US, stock index futures were broadly steady early on Wednesday following Tuesday’s technology-led decline. At 6:09am ET, Dow futures were up 0.02%, S&P 500 futures were down 0.04% and Nasdaq 100 futures fell 0.22%, after the Philadelphia semiconductor index had dropped almost 5% during Tuesday’s session.

Chip stocks remained under pressure before Wednesday’s opening bell, with Marvell and Intel both falling more than 1% in pre-market trading. Nvidia had also recorded a sharp decline during Tuesday’s technology sell-off, while most other large technology and growth stocks were little changed before the market opened.

Estée Lauder rose 6.8% on Wednesday after the cosmetics group forecast annual profit above Wall Street expectations, supported by stronger demand in China. Investors were also awaiting results from Target and TJX Companies on Wednesday, with Walmart due to report on Thursday.

Forex & Commodities

The US dollar weakened early this morning, with the dollar index falling to 98.76, close to a three-month low and heading for a weekly decline. The euro strengthened to $1.169, near a three-month high, while the British pound rose to $1.364 and approached its highest level in six months.

The Japanese yen was steady early this morning at 159.0 per US dollar. The Australian dollar strengthened to $0.7145, its highest level in two and a half months, while the New Zealand dollar rose to $0.5974, its strongest since 1 June.

The dollar remained under pressure after US Treasury Secretary Scott Bessent said overnight that the government could further increase its purchases of Treasury securities. The Treasury had already announced on Wednesday that it would double longer-dated bond buybacks over the next quarter, while Bessent also announced plans for a new fiscal consolidation effort.

Spot gold rose early this morning to $4,537 an ounce, leaving the precious metal 3.6% higher this week and on course for a third consecutive weekly gain. Gold had reached its highest level since early June on Thursday.

Oil prices closed sharply higher on Thursday, with Brent crude rising 2.4% to $93.78 a barrel and US West Texas Intermediate gaining 2.3% to $87.83, their highest levels since 24 July. Prices rose for a fifth consecutive session after the US threatened further economic action against countries supporting Iran, while shipping through the Strait of Hormuz remained far below pre-war levels.