Quilter Cheviot|Weekly Comment

Oil Prices Surge as Middle East Diplomacy Falters

Our weekly market overview from Quilter Cheviot

By Alan McIntosh, Chief Investment Strategist

Events in the Middle East dominated headlines, with diplomatic efforts to reduce tensions stalling, after a summit, at which US President Joe Biden was due to meet Egyptian and Palestinian leaders, was cancelled. This, in the aftermath of a tragic loss of life when a missile struck a hospital in Gaza. Oil prices moved higher as did the price of gold, the latter often seen as a safe haven in times of rising geopolitical tensions.

US economic data continued to point to a resilient consumer, with retail sales for September stronger than expected. Comments by Jay Powell, president of the US Federal Reserve Bank reiterated the view that inflation was still too high and that lower economic growth was needed to bring it down. Despite this, markets still believe that the US central bank will not raise interest rates at its next meeting in November.

Meanwhile in the UK, inflation data was disappointing, with CPI reported at 6.7% on an annual basis, unchanged from the previous month. This was against an expectation that the number would edge down to 6.5%. In a similar vein to the US, Interest rates in the UK are expected to remain unchanged after the next Bank of England meeting.

Equity markets were generally weaker, with share prices reflecting fears of a potential escalation of hostilities in the Middle East. Somewhat surprisingly however, bond yields rose over the week, where one might have expected safe haven assets to be in demand. The yield on the US 10 year Treasury rose above 5% for the first time since 2007. Although this partly echoes the view that interest rates are likely to remain higher for longer, it also reflects the reality that bond issuance in the US is set to increase sharply, at a time when the US central bank is no longer a major purchaser.

Read the original article from Quilter Cheviot here…

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