AJ Bell head of markets Dan Coatsworth said:
Investors feel like they’ve hit rewind on a movie they didn’t enjoy first time round. The ability to get shipping through the strait of Hormuz is once again compromised thanks to the renewed tensions between Tehran and Washington.
For now, investors seem to be retaining a measure of calm and hoping a path towards a resolution in the Middle East can still be found. The longer the current situation persists though, the more likely market sentiment takes a more serious hit.
The UK market fared better than most other parts of Europe thanks to its heavy exposure to the energy sector through BP and Shell.
Stocks with exposure to the travel sector along with retailers and housebuilders were among those to take a step back as investors weighed up the implications of potentially higher inflation and interest rates.
Oil prices jump 3.5%, European shares fall on Middle East escalation
Oil prices jumped as much as 3.5% and European shares have opened lower, as escalating tensions between the US and Iran spoked investors.
Brent crude has risen through $86 a barrel, and is currently up 3.4% at $86.15 a barrel, after the US carried out a third night of military strikes against Iran and Donald Trump announced a blockade of Iranian shipping and a 20% fee on cargo transiting the strait of Hormuz.
The US president said the passage would stay open “with or without Iran” but that the US would start charging fees on ships transiting through the waterway, in an apparent policy reversal. A 20% fee would be levied “for any and all costs necessary” to provide security and safety for vessels.
The FTSE 100 index in London is down 0.5%, or 52 points, at 10,445. The German Dax has dropped 0.55%, the French CAC lost 0.9%, the Italian borsa declined 0.7% and the Spanish Ibex tumbled 1.07%.
BP has topped the FTSE 100 with a 3% gain, while Shell shares are 1.7% ahead, after a trading update from BP.
BP said net debt at the end of the second quarter is expected to fall to between $22bn and $23bn, from $25.3bn in the first quarter. It also expects its second quarter oil trading result to be “slightly higher” compared with the first quarter.
Victoria Scholar, head of investment at the trading platform interactive investor, said:
That’s even after an extremely strong period for oil trading last quarter when the Iran war fuelled energy shock supercharged earnings which more than doubled year-on-year.
It appears that the Middle East uncertainty is here to stay at least for now after the US said it will reimpose a naval blockade on Iran, reversing course after last month’s steps towards a peace deal with Iran. Ongoing higher oil prices are supportive of BP’s share price as well as its earnings in the near-term, but the company’s outlook is highly vulnerable to developments in the Iran conflict beyond its control.
Updated
The oil price is now up more than 3% at $85.89 a barrel.
It is the first time Brent crude has risen through $85 since the US and Iran announced their ceasefire.
China’s car exports rose to a record 1m cars in June as part of the wider surge in trade, which could lead to more tensions with European and other trading partners.
Shipments of cars jumped 71.2% in June from a year earlier to 1.06m, according to the Chinese customs data.
This puts China on track to export more than 10m cars this year, up from 7.1m last year and more than double the 4.9m sold abroad in 2023, the Financial Times said.
Sales within China have slowed sharply after Beijing phased out electric vehicle subsidies and as demand for petrol and diesel cars has fallen.
The surge in Chinese exports has prompted the EU and others to slap steep tariffs on car imports from the country.
Introduction: Oil prices rise over 2% after Middle East strikes; China’s exports surge on back of AI boom
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
Oil prices rose more than 2% after the conflict in the Middle East worsened, with the US carrying out a third consecutive night of strikes against Iran. Two tankers came under fire in the strait of Hormuz.
Brent crude, the global benchmark, climbed 2.2% to $85.15 a barrel, after touching $85.64 in early London trading.
Donald Trump said the US would reinstate its blockade of Iranian shipping in the Gulf, but vowed that the strait would remain open, “with or without Iran”.
Susannah Streeter, chief investment strategist at the Wealth Club, said:
Stasis has taken over markets as investors wait for the latest twist in the Iran conflict and brace for higher energy prices to filter through to economies. Brent crude has surged even higher, topping $84 a barrel, while European gas prices have shot up to levels not seen in three months.
There was a surge in China’s exports last month, lifted by orders for chips and computing power to feed the global AI boom.
Exports climbed 27% from a year earlier measured in US dollars, the biggest rise in four months, according to Chinese customs data. They outpaced May’s 19.4% gain and the 18.2% increase forecast by economists.
This means China is likely to post a trade surplus above $1 trillion for a second year, despite slowing growth in major economies and trade frictions with Washington. It is heavily reliant on export sales, to make up for sluggish domestic demand amid a prolonged property crisis.
Imports jumped 36% following May’s 27.4% gain, marking a five-year high. Economists had forecast growth of 24% for June. China posted a trade surplus of $125.6bn in June, up from $105.4bn in May.
The surge in global AI investment is offsetting the export hit from the war in the Middle East.
Xu Tianchen, a senior economist at the Economist Intelligence Unit in Beijing, said:
Continued export strength, mostly driven by AI, points to a better second half, coupled with a more expansionary policy mix, accelerated fiscal spending and mild monetary easing, as well as a de-escalation of the situation in the Middle East, which will benefit China through lower oil prices.
But domestic demand remains a drag. Retail sales remain pretty flat and fixed asset investment was negative last month.
Annual exports accounted for 24% of total manufacturing sales over the first four months of this year, according to a recent report by Gavekal Dragonomics, a consultancy, the highest level since China’s accession to the World Trade Organization in 2001. In 2019, the ratio stood at 18.3%, and rose to 22.3% last year. The report said:
That would be considered high for a small export-focused country; for the world’s second-largest economy, it is remarkable.
Zhiwei Zhang, chief economist at Pinpoint Asset Management, told Reuters:
I think exports will remain strong in the second half of the year. Meanwhile, it also puts further pressure on the trade tensions between China and its trading partners, Europe in particular.
Analysts noted that surging semiconductor prices are pushing up import as well as export values.
Imports from South Korea, a major chip manufacturer, rose 85% last month, while purchases from Taiwan, another big semiconductor manufacturer, climbed 41.1% over the same period.
Customs vice minister Wang Jun said he was confident that exports would be resilient into the second half of the year led by technology, despite external pressures.
The Agenda
9am BST: Bank of England governor Andrew Bailey speech
1.30pm BST: US inflation for June (previous: 4.2%; forecast: 3.8%)
3pm BST: US Federal Reserve chair Kevin Warsh testifies
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