Markets keep the faith – but oil staying above $100 could test that optimism | Nils Pratley
Was it only at the new year that the fanfare was heard for the FTSE 100 index breaking through 10,000 for the first time? It was – on 2 January – and the index then added another 900 points by the end of February,On Thursday, the Footsie briefly fell below that round number as Iran struck Qatar’s enormous Ras Laffan complex, which normally supplies a fifth of the world’s liquefied natural gas, before closing at 10,063, down 2,3% on the day,There are two ways to view that price action,One is to say the sharp reversal from the peak represents a necessarily severe reaction to the war on Iran.
Another is to conclude that a flat year-to-date return, after a bountiful 20% gain in 2025, suggests stock markets have barely begun to take seriously the inflationary impact if the war lasts many more weeks, or even months, and keeps oil above $100 a barrel.“Markets are very resilient and complacent, and we are a bit surprised about that,” said Nicolai Tangen, the head of Norway’s $2tn (£1.5tn) sovereign wealth fund, earlier this week.Well, quite.The resilience of companies themselves, as he suggested, is perhaps one explanation.
Firms can cut costs and try to pass on increases in input prices.Recent shocks, such as the Covid pandemic and Russia’s invasion of Ukraine, may have forced them to inject greater flexibility into their supply chains.It is still far too early to hear profit warnings.In the case of the Footsie, a size-weighted index, there are also a few big constituents that obviously benefit from higher oil and gas prices: Shell and BP are up 24% and 31% respectively since the new year.Another explanation is that investors may be right – despite the strike on Ras Laffan – to keep the faith and believe that energy prices will calm down soon.
That seems to be the consensus opinion.Bank of America’s closely watched regular poll of fund managers this week found that only 11% expect a barrel of Brent to be over $90 by the end of the year, and the average forecast was just $76.That finding, though, also suggests there is plenty of room for expectations to be upset if the energy price shock intensifies.The pass-through effects would be fairly rapid.In a UK context, current oil and gas prices “are already enough to add around 1% to headline inflation in the coming months, while shortages of fertilisers could push food inflation higher later in the year”, reckons David Rees, the head of global economics at the fund manager Schroders.
In the circumstances, the Bank of England’s decision to hold interest rates was the only one possible.Policymakers are as clueless on the length of the war, and the cost of energy six weeks or six months from now, as stock market investors.The Bank’s messaging was inevitably of the fudged variety.On one hand, it stands “ready to act as necessary” on interest rates to control inflation.On the other, “markets are getting ahead of themselves in assuming rate rises”, said the governor, Andrew Bailey.
But one suspects we won’t have to wait too much longer to see central banks’ real analysis of the inflation risks.If oil stays at $100 for another month, higher interest rates will be the way to bet.
Farage backs Tory attack on Muslim iftar event, saying public prayer ‘was a shock’ – UK politics live
Q: [From Peter Walker from the Guardian] Yesterday you backed what Nick Timothy said about the Ramadan event in Trafalgar Square. What was your objection to it? Yesterday your party said it was a segregation matter. This morning the party chair, Kevin Hollinrake, said it was a general point about prayer in public. But in an article this morning Timothy said this was a specific point about Islam. What is the party’s position?Badenoch says they are both right
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Abandon hope all ye who enter here. You’d have thought this would be the very definition of futility. An act of defiant nihilism. A few weeks ago Kemi Badenoch had declared that the Tory candidate for Gorton and Denton, Charlotte Cadden, had been the real winner despite getting under 2% of the vote and losing her deposit. Now Kemi was to launch the Conservatives’ local election campaign in the certain knowledge the end result would be electoral wipeout
Kemi Badenoch backs Nick Timothy after he calls Islamic public prayers ‘act of domination’
Kemi Badenoch has backed her shadow justice secretary, Nick Timothy, after he claimed that Islamic prayers taking place in public are intimidating and un-British, with Labour saying the Conservatives had embraced the “gutter” politics of prejudice.The row began after Timothy posted images on social media of prayer at a Ramadan event in London’s Trafalgar Square, saying mass prayer in public places was “an act of domination” and “straight from the Islamist playbook”.After heavy criticism, including from Sadiq Khan, the London mayor, who attended the event, Timothy doubled down on his views, writing in the Daily Telegraph that such an expression of a non-Christian faith was a “challenge” and a call for replacement.After a speech to launch the Conservatives’ local election campaign in London on Thursday, Badenoch was asked if she agreed with Timothy, or with arguments from other Tories that the main worry about the event was about prayers being separated for women and men.“They are both correct,” Badenoch said
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Angela Rayner’s allies say HMRC inquiry set to be resolved before May elections
For months there has been an apparently insurmountable obstacle to Angela Rayner going for the Labour leadership, should Keir Starmer find himself facing a contest.The investigation by HMRC into the former deputy prime minister’s tax affairs has hung heavily over her since she was forced to resign last September over underpayment of stamp duty on her seaside flat.But now Rayner’s allies are increasingly confident that the inquiry will be resolved before the May local elections – a moment of high peril for the prime minister – paving her way for a full return to frontline politics.The Guardian understands that outstanding legal issues over the tax investigation are being ironed out by lawyers and the HMRC process is now approaching its conclusion.Rayner is also on course to make about £100,000 from speaking engagements since she left government and her memoir, meaning she has earned enough to pay off her outstanding tax bill
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