Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
The oil price has hit its highest level since January, after the US bombed Iran’s nuclear facilities over the weekend.
Traders are in a largely risk-off mood, as they weigh up the chances of further escalation in the Middle East, and ponder possible Iranian retaliations. But there’s not a full-blown panic in the markets.
There was an early leap in the oil price when the new trading week began; crude prices surged over 4%, pushing a barrel of Brent crude to a five-month high of $81.40 per barrel.
But… it’s slipped back even before traders in the City of London reached their desks, and is now up 1.7% at $78.32 per barrel.
Yesterday, Iran’s parliament voted to shut down the Strait of Hormuz, though which a fifth of the world’s oil is transported. If it happened, that could create a supply shock that drives up the price of energy, fuelling inflation and hurting growth.
In response,MarcoRubio, the US secretary of state, warned it would be “economic suicide” for Iran to close the Strait, and urged China to sway Tehran on this point.
Rubio told Fox News:
“I encourage the Chinese government in Beijing to call them about that, because they heavily depend on the Straits of Hormuz for their oil.”
Holger Schmieding,chief economist atBerenbergBank, says the Strait of Hormuz is “the key economic risk to watch”. But, he also argues that a protracted disruption to energy flows in the Gulf region “seems unlikely”, as trying to throttle energy exports would be a high-risk strategy for Tehran.
Schmiedingtold clients this morning:
For more than two decades, the Iranian regime has sought to destabilise various parts of the Middle East. On its own, a big setback to Iran‘s apparent attempt to acquire nuclear weapons should count as a positive.
In the short run, the US “one off“ strike against three Iranian nuclear facilities raises the geopolitical risks in the region to a new level. Markets will probably shift into “risk off” mode as they await the Iranian response. In the long run, however, a severely weakened Iranian regime could turn into a significant positive for the region.
Today: UK government to publish its industrial strategy
9am BST: Eurozone flash PMI manufacturing and services survey for June
9.30am BST: UK flash PMI manufacturing survey and services for June
2pm BST: Christine Lagarde testifies to the Committee on Economic and Monetary Affairs of the European Parliament in Brussels
2.45pm BST: US flash PMI manufacturing survey and services for June
The new week has also begun with some takeover excitement in the City of London.
Spectris, the UK-based maker of precision and testing equipment and software, has agreed to be bought by private equity firmAdventin a £3.8bn deal.
Spectrisdevelops high-tech instruments, testing equipment and software used in sectors such as life sciences, automotive, electronics and semiconductors. It is recommending the offer, which is an 84.6% premium to its value before news ofAdvent’sinterest broke earlier this month.
But the battle may not be over. Rival private equity firmKohlberg Kravis Roberts (KKR)hasn’t abandoned its own interest inSpectris.
KKRjust told the City that it has been “engaging constructively” with the board ofSpectris, having made its own takeover proposal at the start of June.
While no revised proposal has yet been made,KKRinsists it is actively engaged in the advanced stages of due diligence and arranging financing commitments, and urges Spectris’s shareholders to take no action with regards to theAdventoffer….
Analysts atRBCCapitalMarketssay there is “a clear and present risk of energy attacks” in the Middle East, as Iran weighs up its response.
That threat could come from theIran-backed militias in Iraqthat operate near the Basra energy facilities, they suggest.
In a note this morning,RBCpoint out it may take days, or weeks, before we know the Iranian response, adding:
Above all, we would caution against the knee-jerk “the worst is behind us” hot take at this stage. President Trump may indeed have successfully executed an “escalate to de-escalate” move, but a wider expansion cannot still be ruled out at this juncture.
We may be in theRumsfeld “unknown knowns”matrix in this nine-day Middle East military conflict.
Stock markets across the Asia-Pacific region are mixed today, as investors take events in the Middle East in their stride
Japan’sNikkei225index has dipped by 0.17%, while Australia’sS&P/ASX 200index has lost 0.35%.
The mood in China is brighter, though, where theCSI300index is up 0.44%. Hong Kong’sHangSenghas gained 0.55%.
Ipek Ozkardeskaya, senior analyst atSwissquoteBank,says there is a “fascinating calm” in the markets after the US attack on Iran, adding:
Global equities will likely remain under pressure at the open – but judging by how oil prices reacted to the weekend news, the selloff could remain relatively soft compared with the heaviness of the headlines.
S&P futures [the US stock market] are down about 0.30% – they’re behaving like a normal Monday. And that, I find extremely interesting. It really feels like markets have become increasingly unreactive to the news. The lack of reaction is fascinating.
The US dollar has risen, a little, against a basket of currencies today as investors seek out safe haven assets.
The dollar index has gained 0.3% this morning, while the pound has slipped by 0.1% to $1.3433.
CarolKong, currency strategist atCommonwealthBankofAustralia, said the markets are in wait-and-see mode on how Iran responds, with more worries about the positive inflationary impact of the conflict than the negative economic impact.
Kongexplains:
“The currency markets will be at the mercy of comments and actions from the Iranian, Israeli and U.S. governments.
The risks are clearly skewed to further upside in the safe haven currencies if the parties escalate the conflict.”
The head of the International Monetary Fund has warned that last weekend’s US strikes on Iran could hurt global growth, if the consequence ripple beyond the energy markets.
KristalinaGeorgievatold Bloomberg TV this morningthat the Middle East crisis added to global uncertainty, explaining:
“We are looking at this as another source of uncertainty in what has been a highly uncertain environment.”
Georgievasaid the IMF was watching energy prices closely, warning that a rise in oil prices could have knock-on economic impact. She says:
“There could be secondary and tertiary impacts. Let’s say there is more turbulence that goes into hitting growth prospects in large economies — then you have a trigger impact of downward revisions in prospects for global growth.”
Georgievais also hoping that energy supply routes will not be disrupted, saying:
“Let’s see how events will develop.
I pray no.”
IMF's Kristalina Georgieva warned that the US strikes on Iran could potentially have broader impacts beyond energy channels, as global uncertainty escalateshttps://t.co/yqdC6u3HMF
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
The oil price has hit its highest level since January, after the US bombed Iran’s nuclear facilities over the weekend.
Traders are in a largely risk-off mood, as they weigh up the chances of further escalation in the Middle East, and ponder possible Iranian retaliations. But there’s not a full-blown panic in the markets.
There was an early leap in the oil price when the new trading week began; crude prices surged over 4%, pushing a barrel of Brent crude to a five-month high of $81.40 per barrel.
But… it’s slipped back even before traders in the City of London reached their desks, and is now up 1.7% at $78.32 per barrel.
Yesterday, Iran’s parliament voted to shut down the Strait of Hormuz, though which a fifth of the world’s oil is transported. If it happened, that could create a supply shock that drives up the price of energy, fuelling inflation and hurting growth.
In response,MarcoRubio, the US secretary of state, warned it would be “economic suicide” for Iran to close the Strait, and urged China to sway Tehran on this point.
Rubio told Fox News:
“I encourage the Chinese government in Beijing to call them about that, because they heavily depend on the Straits of Hormuz for their oil.”
Holger Schmieding,chief economist atBerenbergBank, says the Strait of Hormuz is “the key economic risk to watch”. But, he also argues that a protracted disruption to energy flows in the Gulf region “seems unlikely”, as trying to throttle energy exports would be a high-risk strategy for Tehran.
Schmiedingtold clients this morning:
For more than two decades, the Iranian regime has sought to destabilise various parts of the Middle East. On its own, a big setback to Iran‘s apparent attempt to acquire nuclear weapons should count as a positive.
In the short run, the US “one off“ strike against three Iranian nuclear facilities raises the geopolitical risks in the region to a new level. Markets will probably shift into “risk off” mode as they await the Iranian response. In the long run, however, a severely weakened Iranian regime could turn into a significant positive for the region.
Today: UK government to publish its industrial strategy
9am BST: Eurozone flash PMI manufacturing and services survey for June
9.30am BST: UK flash PMI manufacturing survey and services for June
2pm BST: Christine Lagarde testifies to the Committee on Economic and Monetary Affairs of the European Parliament in Brussels
2.45pm BST: US flash PMI manufacturing survey and services for June