Oil prices volatile after Iran attack, JPMorgan Disappoints

Equities

On Friday, the FTSE 100 approached a near-record closing high, spurred by rising commodity prices that boosted mining and oil stocks. The index ended the day up by 0.9% at 7,995.58, tantalisingly close to its all-time high of 8,014.31 set in February 2023. Among the standout performers, BP saw its shares climb by 3.7% following reports that the United Arab Emirates' state-owned oil company had considered acquiring the firm, although these discussions remained preliminary.

The mid-cap FTSE 250 index, however, dipped by 0.3%. This included a sharp 8.2% drop in the shares of airline operator Wizz Air, driven by concerns over rising fuel costs. Other airlines, such as EasyJet and British Airways owner IAG, also experienced declines of 4.3% and 3.8%, respectively. Additionally, R&Q Insurance plunged by 45.4% to a record low after predicting a significant annual pre-tax loss. Petrofac's shares also tumbled by 20.5%, as the oilfield services provider continued discussions with lenders to restructure its debt.

Shifting focus to the US, and looking back on the year to date, the S&P 500's energy sector demonstrated robust growth, surging by approximately 17% in 2024. This performance was largely driven by a significant rise in oil prices and a strong US economy. Marathon Petroleum and Valero Energy were among the top performers, with stock price increases of 40% and 33%, respectively. The broader S&P 500 also saw positive movement, although at a more modest pace compared to its energy component.

In the energy sector, Exxon Mobil and Chevron have been notable for their disciplined capital spending, which has contributed to the sector's strong performance amidst rising oil prices and inflation concerns. The rising prices are partly attributed to escalating tensions in the Middle East and persistent fears of inflation, which has encouraged investors to include energy shares as a hedge in their portfolios.

Forex & Commodities

The US dollar has recently strengthened, showing a significant 1.6% increase against a basket of six major currencies, following an unexpected uptick in US inflation which dampened expectations for an immediate rate cut by the Federal Reserve. The yen notably weakened, hitting a 34-year low against the dollar, while the euro hovered near a five-month low, trading at $1.0655 to the euro.

In response to the inflation report, bets on US interest rate cuts have been pushed back, with the market now expecting the Federal Reserve to start easing in September. This anticipation of sustained high interest rates in the US has contributed to the dollar's firm position.

Gold prices also reflected market volatility, with spot gold reaching $2,357.99 per ounce after hitting a record high of $2,431.29 in the previous session. This surge in gold prices is attributed to safe-haven buying amid escalating Middle East tensions and expectations of US rate cuts later in the year.

Oil prices, meanwhile, fell slightly after Iran's attack on Israel, as the initial market reaction priced in the geopolitical risk, leading to a slight decrease with Brent futures trading at $90.22 a barrel and West Texas Intermediate at $85.37 a barrel. The market's focus remains on the potential escalation of conflict in the Middle East and its impact on oil supply routes.