After shares rallied yesterday, on hopes the Israel and Iran conflict would remain contained, stock markets have lurched lower today after US President Donald Trump left early from the G-7 summit in Banff and told Iran to evacuate the capital city, Tehran.
European markets are lower this morning despite the FTSE, Dax and Cac rising yesterday. In early trading, London is down 0.4 per cent while shares in Paris are down 0.7 per cent. Frankfurt the biggest loser, dropping 1.2 per cent. Ashtead fell as it reported a decline in profits ahead of its move to New York, whilst outsourcer Capita also declined after revenues fell 4.5 per cent in the first five months of the year. BP and Shell rose alongside the oil price to limit some of the losses in London. More on all that here
US stock markets also bounced back yesterday from Friday’s sell-off, with the S&P 500 almost 1 per cent higher and the Nasdaq gaining 1.5 per cent. The Dow climbed 0.75 per cent to almost recapture its 200-day moving average but all three US index futures are sharply lower this morning. AMD shares surged about 9 per cent after Piper Sandler said that they expect a snapback for AMD’s GPU business in the fourth quarter. Nvidia rallied almost 2 per cent and Arm Holdings rose nearly 5 per cent.
Back to the Middle East, and Trump said he left the summit early due to something “much bigger” than discussing a ceasefire. Israel and Iran traded strikes for a fifth day. Reports have indicated that Tehran is willing to negotiate, but it takes two to tango, and Israel won’t stop until it feels like it’s done enough. Diplomatic sources in Iran have reportedly pushed for a ceasefire, but Israeli Prime Minister Benjamin Netanyahu said on Monday his country was “not backing down” from eliminating Iran’s nuclear programme. Palantir – which has skin in the game in terms of the global defence outlook – hit a record high.
Markets are very headline-driven right now: Gold surrendered most of its haven bid to trade back below $3,400 on Middle East optimism, before climbing again overnight as some of the optimism faded. The gold trade is a bit tired and we are looking for fresh momentum – perhaps from the Federal Reserve and the tax bill moving through Congress right now.
Likewise, crude prices gave back most of the Israel/Iran war spike amid peace deal optimism, only to rally again after Trump called for the evacuation of Tehran. The crude market is not what it was in the 1970s when we saw conflict drive a long-term surge in prices and resultant stagflation in the West. We have a new energy paradigm, and each unit of GDP requires far less oil than it used to, and we have the shale revolution, which means the US is a net exporter of crude.
UK investors are awaiting inflation data, the Bank of England’s policy update, and retail sales, all due this week. Today, the focus for the market will be the US retail sales report.
By Neil Wilson, investor strategist at Saxo UK