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Written by: Susannah Streeter | Hargreaves Lansdown
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Subdued mood on markets amid fresh geo-political risk after Iran’s strikes on Israel.
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Brent crude gained fresh ground as Israel resumed attacks on Lebanon, trading close to $75 a barrel.
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Gold prices hover around record levels as investors search for safe-haven assets.
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Fed policymaker speeches in focus, after chair Jerome Powell hinted that the next rate cut is likely to be a more usual 25bps reduction.
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Inflation draws the focus for JD Vance during Vice Presidential televised debate.
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AO World looks set to bring Music Magpie into its electrical nest.
A subdued tone has hit trading as markets brace for further repercussions from the Middle East crisis. The FTSE 100 has headed higher in early trade, partly because of its defensive nature, helped by strength in energy stocks as oil prices continue their march upwards.
As Iran’s cruise missile attack on Israel and fresh strikes on Hezbollah in Lebanon have unnerved investors. The uncertainty has made safe-haven assets like gold more popular, with demand for the precious metal ticking up close to record levels, as violence spills further across the Middle East, briefly climbing above $2,670 an ounce. Already sought after, amid concerns that inflationary pressures would persist, fresh geopolitical fracture has increased demand for gold. The dollar has steadied after gaining ground and US Treasuries proved more popular, indicated by falling yields, as investors have sought out trusted shelters amid the widening conflict.
Oil prices are climbing, with Brent Crude approaching $75 a barrel, as supply concerns swirl again, sparked by heightened aggression. These worries are being mitigated by expectations that Saudi Arabia will turn on the taps more fully, and lower demand from China, but upwards pressure is likely to continue while uncertainty reigns about just how far conflict will spread. This has been accompanied by a rise in the Vix Index, the so-called ‘Fear Index’, as speculation swirls about the extent to which the US could be drawn into the war, given its pledge to support Israel.
The risk-off attitude showed up in the US tech sector, with some magnificent seven stocks among the biggest fallers - Apple and Microsoft fell by more than 2%. With stocks on Wall Street having reached heady heights, they are set to be ultra-sensitive to further geopolitical shocks.
Some of the market’s effects playing out are due to changing expectations of the Fed’s interest rate path. Fed chair Jerome Powell has hinted this week that more caution is returning round the table at the central bank, and that the committee is not in a hurry to cut rates quickly. Market watchers will be attuned to upcoming speeches today from multiple Fed policymakers, to see if the wary tone keeps up. Federal Reserve Governor Michelle Bowman, Tom Barkin of Richmond and president of the Federal Reserve's Richmond branch and St Louis Federal Reserve (Fed) President Alberto Musalem have all warned of the need for gradual action in recent weeks, after the larger than usual cut in September. A keen eye will also be trained on the strike at major US container ports. The threat of fresh snarl ups in supply chains is likely to increase concerns that inflation could spring back up again.
The risks of fresh price spirals are a big issue on the Presidential election campaign trail. JD Vance, the Republican Vice-Presidential candidate, wasted no time pointing out that inflation had been lower during the first Trump administration during the debate with the Democrat’s Tim Walsh. The tone of the debate was far more genteel than the Trump/Harris head-to-head, and it’s unlikely to be a significant vote changer, and so is having limited repercussions for assets.’’
AO World looks set to snap up Music Magpie in its quest to become the number one destination for all things electrical. Although it may be music to the ears of some newer shareholders given the dismal performance this year, the offer of 9.07p per share is still a fraction of the IPO price. Music Magpie sailed into the AIM market back in 2021 priced at 193p per share, so those early investors will be nursing a heavy loss, if the deal goes through. There was great enthusiasm for its business model, which was focused on selling refurbished consumer technology, given the opportunities eyed in the circular economy concept. But it’s been hit by higher costs and increased competition, with another weak sales performance in the first half of the year. AO World has faced its own fair share of problems in recent years, having pivoted to meet high demand during the pandemic for electricals, it saw business drop away, with many purchases having been brought forward. It’s now regained its mojo, delivering annual profits ahead of guidance. Gaining a bigger foothold in the mobile market has been a big part of the plan, and refurb models offer new avenues of business which is why it wants to add Music Magpie to its nest. Given the electrical focus of AO World, it’s likely that Music Magpie’s other forays into the re-selling world, like second-hand books and pre-loved clothes, will be quietly dropped.’