Global stock markets continue to be troubled by inflation fears as tensions escalate in the Middle East.
Bringing markets down is a cocktail of worries around the scale of interest rate hikes that could be around the corner, geopolitical concerns, and fears that economic growth expectations might have to be revised down.
Oil prices remain stubbornly high amid fighting in the Middle East and fears of supply disruptions. Brent crude oil is now hovering around $95 a barrel, nearly 20% higher than a month ago. That has major implications for businesses and consumers, pushing up the cost of goods and services, as well as energy.
Investors are now staring directly into the eyes of an inflation monster that threatens to become stronger unless action is taken. Central banks typically raise interest rates to fight inflation, and market expectations for the scale of rate hikes continues to evolve.
The market is now pricing in a 70% chance the Federal Reserve will raise interest rates in the US later this month, a 59% chance of another hike in October, and possibly one more in December.
It’s a trio of pain this side of the Atlantic as well. Investors are pricing in one UK interest rate hike by the Bank of England this November, a second next February and a third by June.
Having yesterday hit its highest since the global financial crisis at 5.26%, the benchmark 10-year gilt yield eased back slightly to 5.18%. That’s still significantly high enough to cause Chancellor John Healey sleepless nights before he’s even had a chance to present his first Budget.
Bonds are reaching the point where certain investors may seek to lock in high yields caused by the latest market volatility. What might be holding them back is an expectation that yields could get even higher if rates go up fast and hard, meaning certain bond investors could be playing a waiting game before piling in.
Equity markets were mostly in the red, although the scale of the decline wasn’t alarming. The FTSE 100 dipped 0.2% to 10,763, with investors finding solace in utilities, energy and financials while other sectors dragged their heels.
BP
Given how the appointment of a complete outsider panned out at BP, it’s not a surprise that interim chair Ian Tyler has been handed the job on a permanent basis.
Tyler is more of a known quantity than his predecessor Albert Manifold, having joined BP’s board nearly 18 months ago and sat in the chair’s seat since Manifold’s acrimonious departure in May.
Tyler is also an experienced corporate hand, having served as the boss of Balfour Beatty in the noughties and 2010s and with current roles as chair of Grafton and on the board of Anglo American. To address fears he is wearing too many hats, BP has suggested he will review these external commitments.
There is some risk that Tyler is seen as too conservative a pick in some quarters. A big motivating factor in hiring Manifold was to shake up a business which had lost its way. BP’s green-focused strategy had about as much credibility with investors as the Loch Ness monster.
The initial market reaction suggests Tyler’s appointment hasn’t sparked much in the way of excitement or disquiet, and CEO Meg O’Neill will hope it gives her the space and time to make the changes she wants at the business.
Senior independent director at BP and current Aviva CEO Amanda Blanc is set to depart in the wake of the Manifold debacle, having notably pushed for his appointment last year.
Dan Coatsworth: Head of Markets
Dan Coatsworth is AJ Bell's Head of Markets. Dan has been with the company since December 2012 and has more than 18 years' experience in the industry, following the markets and all things investing. He...
