Key events
European stock markets have opened cautiously higher.
The UK’s FTSE 100 index has edged up 9 points to 7,634, a 0.1% gain. Germany’s Dax and France’s CAC are also up 0.1%, while Spain’s Ibex has gained 0.2%, Portugal’s PSI 20 rose 0.5% and the Italian borsa is flat to slightly lower.
Oil prices nudge higher as traders eye Middle East
Oil prices are heading higher again as traders watch for any supply disruption in the Middle East following US and UK air strikes to stop Houthi militia in Yemen attacking ships in the Red Sea.
Brent crude remains below $80 a barrel, though, after surging through that level on Friday. The global benchmark has advanced 21 cents to $78.50 a barrel, up 0.3%, while US crude is 14 cents ahead at $72.82 a barrel. Both jumped more than 2% last week.
Warren Patterson, head of commodities research at ING, told Reuters:
There are supply risks for the market given in the escalation in the Red Sea.
However, for now we are not seeing any impact on oil supply. And I guess we would need to see significant escalation before that happens.
Yesterday, Houthi militia threatened a “strong and effective response” after the US carried another strike overnight.
Stephen Innes, managing partner of SPI Asset Management, has looked at Taiwan’s election and what it means for the country’s fraught relations with China.
Geopolitically, tension rises following more US airstrikes on Yemen over the weekend, and domestically, President Biden faces challenges in foreign policy on two fronts: the Middle East and Taiwan. Both of these issues could weigh negatively on Consumer Sentiment.
Xi Jinping might be grimacing after Taiwan elected Lai Ching-te for president, marking a third term for the Democratic Progressive Party. Voter turnout was 70%. Lai, who served as vice president since 2020, succeeds Tsai Ing-wen, who stepped aside due to term limits. Lai’s victory is seen as a rebuke to Beijing, as he has been labelled a “troublemaker” by pro-China factions and a supporter of Taiwan’s independence from The Chinese Communist Party.
Lai emphasises the preservation of democracy and is expected to follow Tsai’s approach in deepening Taiwan’s ties with Washington without actively seeking confrontation with Beijing. China may view the election results as a step toward conflict, as Xi Jinping maintains that reunification with Taiwan is a historical inevitability.
Introduction: UK house prices forecast to rise 3% in 2024; oil prices fall back below $80
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
Business and political leaders as well as key players from charities, academia and other organisations are heading to the annual World Economic Forum in the Swiss ski resort of Davos, which will be held under the shadow of global crises.
Over here, UK house prices are forecast to rise 3% this year, beating estimates of a decline, a leading estate agent has said, amid a mortgage pricing war and expectations of Bank of England interest rate cuts.
The surge in oil prices on Friday following US and UK airstrikes against Houthi rebel sites in Yemen was short lived. Houthi rebel attacks on ships in the Red Sea have fuelled fears over disruption to trade.
Brent crude, which rose above $80 last week, is back at $78.32 a barrel this morning while US crude is at $72.63 a barrel.
Ipek Ozkardeskaya, senior analyst at Swissquote Bank, said:
Friday’s producer price inflation came as a certain relief to inflation worries as the latest data showed an unexpected contraction in the monthly figure. The jump in oil prices, following the US and UK airstrikes in areas in Yemen controlled by the Houthis, which sent the barrel of American crude to past the $75 per barrel level, didn’t last long.
The risks are tilted to the upside as conflict news continues to flow in this Monday. Rishi Sunak will address parliament as his government is ready to intensify strikes on Houthi targets. Yet there is a strong barricade into the $74/75 per barrel level in the US crude and near $80 per barrel level in Brent, as the rising global supply, increasing competition to OPEC and the globally weak economic outlook weigh heavier and convince the bears to sell every geopolitically supported rallies.
China’s central bank left interest rates unchanged today despite expectations of a cut, while pumping more cash into the financial system. The reaction on the Chinese stock market was muted, with the Chinese CSI 300 index edging 0.15% higher.
A weakening Chinese currency has limited the room for the People’s Bank of China to reduce borrowing costs and rate cuts could be postponed until later this year. The yuan has weakened more than 1% against the dollar so far this year.
Economists at Capital Economics said:
We suspect the main reason the PBOC failed to deliver this time is a desire to avoid triggering renewed depreciation pressure on the renminbi.
Economists at ANZ said the central bank might have held off cutting rates as “authorities may be concerned about bank profitability”.
Wall Street is closed for Martin Luther King Day today. The US stock markets ended last week flattish (the S&P 500 and the Nasdaq rose slightly, while the Dow Jones slipped 0.3%).
The Agenda
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9am GMT: Germany 2023 GDP growth (forecast: -0.3%, previous: 1.9%)
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10am GMT: Eurozone trade for November
