Interest rates to ‘rise by September’ as oil prices surge
However, sterling was down 0.2pc versus the euro at €1.171. Stay up to date with the latest here.
03:28pm
US stocks rise after inflation figures
Wall Street’s main indexes rose after better-than-expected inflation figures fuelled hopes the Federal Reserve may not have to raise interest rates.
The data showed that the consumer price index rose 3.5pc in June from a year earlier, below analyst estimates of 3.8pc.
Following the report, traders sharply pared back expectations for near-term policy tightening, with a 15pc chance of a quarter-point rate increase at the Fed’s upcoming meeting, down from 35pc before the data.
Skyler Weinand, chief investment officer at Regan Capital, said: “It suggests the inflation surge driven by the Iran war is fading, but this may just be a temporary relief as tensions have escalated in recent days.
The Dow Jones Industrial Average and S&P 500 rose 0.2pc while the Nasdaq Composite climbed 0.5pc.
However, IBM shares tumbled more than 25pc on their worst day in at least six decades after the software and consulting firm forecast weaker than expected second quarter revenues.
Shares of some other software companies also fell, tracing declines in IBM. Oracle dropped 1.7pc and Service Now fell 5.6pc. Accenture declined 2.8pc.
02:59pm
Wealth manager dumps UK bonds over fears Burnham ‘will do a Truss’
A City wealth manager has dumped UK government bonds over fears that Andy Burnham “does a Truss” and drives up borrowing costs with his spending plans.
Rathbones Asset Management confirmed it had sold some government bonds, known as gilts, in anticipation of Mr Burnham becoming prime minister on Monday.
David Coombs, the head of multi-asset investments at the firm, said the £9.8bn money manager was dumping longer-dated gilts to protect against “fiscal irresponsibility”, according to Bloomberg.
Mr Coombs said: “The gilt market presents us with a real dilemma right now. One is that Burnham ‘does a Truss’, or at least appoints a chancellor that is fiscally looser than Rachel Reeves.”
02:40pm
US stocks mixed after inflation surprise
Wall Street lacked direction as traders digested renewed tensions in the Iran war, a rout in software stocks and better than expected inflation figures.
The Dow Jones Industrial Average fell 0.1pc to 52,467.60 after IBM plunged 24pc over fears AI will destroy its business model, following disappointing second quarter results.
However, the benchmark S&P 500 rose 0.3pc to 7,536.70 and the tech-heavy Nasdaq Composite climbed 0.6pc to 26,035.78, shrugging off concerns about the conflict in the Middle East following a sharp drop in inflation.
02:13pm
Warsh vows to rid US of ‘inflation surge’
Federal Reserve chairman Kevin Warsh has vowed that the central bank will rid the United States of a years-long “inflation surge”.
Mr Warsh, who succeeded Jerome Powell as head of the US central bank in May, is expected to tell Congress’s House Financial Services Committee he will make the recent high pace of price rises a “thing of the past”.
In his first appearance before the committee in his new role, he will say: “The Fed’s number one objective is to get monetary policy right – or as near to it as we possibly can.
“If we get policy right – and we will – the inflation surge of the last five years will be a thing of the past.”
01:57pm
Traders reduce bet on US rate rises after inflation surprise
Traders have scaled back their bets on the US Federal Reserve raising interest rates this year after inflation fell further than expected.
Money markets show the Fed is only expected to raise rates once this year, down from probably two by before the latest inflation data was released.
It is still expected to lift rates later this year, by no later than December, but traders had bet that this rate rise was due to happen in September.
It comes after inflation fell from 4.2pc to 3.5pc in June, well below forecasts of a drop to 3.8pc, thanks to falling gasoline prices.
01:38pm
US inflation falls further than expected
US inflation dropped sharply in June, official figures showed, after a steep fall in petrol and diesel prices.
The consumers prices index dropped from 4.2pc to 3.5pc, according to the Labor Department, in a sign the American economy was recovering from the effects of the Iran war.
Inflation fell after gasoline prices decreased 9.7pc in June, helping overall energy prices drop by 5.7pc.
However, the data comes after the resumption of hostilities between the US and Iran and as AAA figures show gasoline prices rose to $3.86 a gallon on Tuesday, up from $3.79 a week ago.
01:15pm
Oil prices risk hitting $160 as stocks deplete
The price of oil could reach $160 a barrel or even higher, economists have warned, as global stockpiles are used up during the latest US blockade in the Strait of Hormuz.
Brent crude has surged 14pc in two days after the ceasefire between the US and Iran broke down and Donald Trump said he would stop oil leaving Iranian ports.
Capital Economics said prices could rise to the “$140-160pb range, and they could feasibly peak even higher” as inventories are used up.
The OECD said commercial inventories fell in June even after the signing of the US-Iran preliminary peace deal, which is now in tatters.
David Oxley said: “Given that global oil stocks have been significantly depleted since the start of the conflict, there is a greater risk that the oil market reaches a ‘tipping point’ if oil flows do not recover over the coming months.”
“There is no single trigger or ‘threshold’ that stands out, but it would have to be something that meant the recovery in energy exports from the region would clearly be slower and/or less extensive than assumed in our baseline scenario.”
He added: “The key point is that the global oil market is now in a more vulnerable position to withstand further supply shocks than it was earlier this year.”
12:47pm
Goldman Sachs trading desk boosted by Iran war turmoil
Goldman Sachs profits rose as its stocks business hit new records as a result of the market volatility surrounding the Middle East war.
Inflation risks, elevated oil prices and uncertainty over interest rates led to stronger revenue from its equities trading desk, which helped total profits rise 78pc to $6.6bn in the second quarter.
SpaceX’s much-anticipated IPO toward the end of the quarter also gave investors an opportunity to trade a company they had long sought access to, which some analysts said may have provided an additional lift to volumes. Goldman was one of the lead underwriters for the IPO.
The equities business fetched revenue of $7.4bn (£5.5bn), surging 72pc from a year ago. The fixed income, currency and commodities business revenue also jumped 32pc to $4.6bn.
Chief executive David Solomon said: “Momentum has accelerated throughout our businesses. Clients are turning to us to lead their most strategic and consequential transactions, which are often the genesis of activity across the franchise.”
12:03pm
JP Morgan boss ‘cannot predict’ how Iran war ends
The head of Wall Street’s biggest bank has said he cannot predict how the Iran war will play out following the latest outbreak of hostilities.
Jamie Dimon, the chief executive of JP Morgan, said the US economy faces several risks, including “geopolitical tensions and wars, sticky inflation, large global fiscal deficits and elevated asset prices”.
He said: “The US economy has demonstrated notable resiliency this year, with stronger business investment and hiring.
“This strength is being supported by several tailwinds, including AI-driven capital investment, fiscal stimulus and the benefits of more efficient regulation.
“However, several risks are shifting below the surface like tectonic plates, including geopolitical tensions and wars, sticky inflation, large global fiscal deficits and elevated asset prices.
“We cannot predict how these forces will ultimately play out. They may remain manageable, but they could also cause meaningful disruptions when they shift or collide. We carefully monitor these risks and prepare the Firm for a wide range of scenarios to ensure that we can serve our customers and clients consistently in all environments.”
Mr Dimon spoke as JP Morgan revealed a 41pc increase in profits in the second quarter to $21.2bn (£15.9bn) compared to the same period last year, after revenues grew by 27pc to $58bn.
11:37am
Gas prices hit four-month high
European gas prices have hit their highest level since March after Donald Trump said he could charge ships to use the Strait of Hormuz.
Dutch TTF, the benchmark on the Continent, rose as much as 4.8pc to nearly $54 per megawatt hour after the US president said America could act as a “guardian” of the waterway.
A fifth of the world’s oil and gas exports pass through the strait in peacetime but traffic has halted following US strikes, which follow attacks on ships trying to use the route.
The UAE said Iran had attacked two tankers overnight, killing one sailor and injuring eight more crew members.
Gas prices have been hit harder by the conflict than oil. Dutch TTF is 67pc higher than before the start of the Iran war, compared to 20pc for Brent crude.
Stephen Innes of SPI Asset Management said: “The divergence is not simply another expression of geopolitical anxiety. It reflects a genuine difference in the speed at which energy supplies are recovering following the latest escalation in the Iran conflict.”
He pointed to research by Goldman Sachs showing Middle East crude exports have returned more quickly than LNG. Meanwhile, Qatar’s gas facilities have recovered more slowly than expected after taking damage from missile strikes.
Mr Innes said: “A further decline in Hormuz crossings would likely interrupt that recovery.”
11:22am
Oil prices surge 15pc as Iran war reignites
Oil prices have leapt 15pc in two days after the breakdown of the ceasefire between the US and Iran.
Brent crude was close to $87 a barrel, having ended last week at around $75, after Iranian attacks on vessels in the Strait of Hormuz and US retaliatory strikes.
US benchmark West Texas Intermediate has risen from $71 to $81 over the same period after Donald Trump said the US could charge ships for using the waterway in exchange for protection.
Soni Kumari, an analyst at ANZ, said traders were trying to work out whether this was a more permanent resumption of hostilities.
He said: “Despite signing the memorandum of understanding and having a deal, this did not last for even a few weeks. So that’s the concern the market is trying to price right now.
“What we think is that the peak of the escalation is behind us, but there are upside risks to oil prices if these disruptions continue and that will keep prices in the $85-$90 range.”
11:06am
UK borrowing costs to ‘remain highest in G7’
Andy Burnham will continue to face the highest government borrowing costs in the G7 following the latest spike in oil prices, an economist has warned.
The yield on 10-year gilts, as UK bonds are known, hit a two-month high above 5pc on Tuesday, breaching the level for the first time since May, as tensions in the Middle East raised fears about inflation.
By comparison, Germany’s equivalent borrowing costs are 3.12pc, while France, which has a bigger debt burden than Britain, faces 10-year borrowing rates of 3.9pc.
Daniel Mahoney, senior UK economist at Handelsbanken, said: “Since the start of the Iran war, UK gilts have been especially volatile and the last couple of days have seen outsized movements in UK gilts.
“This reflects market judgement that the UK is especially exposed to geopolitical risk as well as broader concerns about the persistence of elevated UK inflation and a reliance on overseas investors to buy gilts.
“We expect UK gilt yields to remain the highest in the G7 – and there could be some further market response to the incoming Prime Minister’s selection for Chancellor.”
He added that the gap between UK borrowing costs and the rest of the G7 could narrow in the medium term if tensions ease in the Middle East.
10:50am
Higher rates ‘will hammer the economy’
Raising rates will not effectively combat an oil shock and could leave thousands of people in negative equity on their mortgages, Telegraph readers have warned.
Here is a selection of views from the comments section below, and you can join the debate here.
10:25am
Bailey urges Burnham to tackle slow growth
The Governor of the Bank of England has said his key message to Andy Burnham’s incoming government is that the “big issue” for the UK is slow economic growth.
Andrew Bailey told the Treasury Committee: “The overall message I would give is that I think the big issue is growth in the economy.
“I do actually think that there are signs of a very resilient financial system.
“What I think is much more challenging is we’ve had low growth in the economy now for the best part of 16 to 17 years.
“So this is not a story about any one government… but I think it’s important because a critical structural issue.”
But he stressed: “We will not get growth if we don’t have financial stability” when asked whether regulation in the financial system may be restricting growth.
10:19am
Bailey concerned about traders borrowing money to fund bets
Andrew Bailey said he was concerned about the amount of borrowing being used by hedge funds and trading funds to juice their returns.
The Governor of the Bank of England told MPs: “We’ve got an issue with leverage in financial markets.”
Leverage is when traders borrow money to amplify their returns – but the practice can also increase losses if their bets go south.
Mr Bailey said that in recent months there had been an increase in leverage used in stock markets by both hedge funds and also in ETFs – funds which bet on a cross-section of stocks in a certain country or sector, which are used by many retail investors.
Mr Bailey said policymakers would examine whether to increase regulations on the amount of leverage that could be used.
“If we need we think to do something in that market leverage regime, is it better to do it in the banking world or the market world?
“Is it better to tackle this market leverage question in the market regualtion world or the banking regulation world? My own view is it’s better to do it in the market world.”
09:57am
Bailey says fiscal rules have kept markets in check
Andrew Bailey underlined the importance of the fiscal rules for keeping markets steady ahead of Andy Burnham becoming prime minister next week.
The Governor of the Bank of England told the Treasury select committee he would not comment on politics but did signal that he hoped Mr Burnham would stick to the rules designed to lower government borrowing over time.
Mr Burnham has said he would stick to the fiscal rules.
Mr Bailey said: “The big drivers of moves in financial markets are not the UK, it’s global.
“The UK situation is supported by, on our side, monetary and financial stability, and on the other side is the fiscal framework.”
09:53am
Fuel prices not coming down, says Bailey
Andrew Bailey told MPs the cost of petrol and diesel had not fallen as fast as wholesale oil prices after an easing of tensions in the Middle East in recent months.
The Governor of the Bank of England said prices of refined products – which includes petrol and diesel – had not come down as much as oil.
The RAC and AA both reported on Monday that fuel prices had begun to rise again following recent tensions in the Middle East.
09:50am
Bailey: Financial risks have increased
Andrew Bailey said financial risks in the economy have increased as he appeared in front of MPs.
Starting an appearance before the Treasury select committee, he said risks were higher due to “developments in the world economy and particularly developments in the Gulf”.
He also pointed to the impact of AI.
09:49am
ECB expected to raise rates over oil shock
The European Central Bank is also expected to raise interest rates in the wake of the latest surge in energy prices.
Traders are betting that policymakers will raise again in September from 2.25pc to 2.5pc, having raised the deposit rate in June.
Money markets show there is an 80pc chance of a third rise to 2.75pc before the end of 2026.
09:42am
Traders expect ‘several more days of renewed US strikes’
A top analyst expects higher oil prices to dominate the next few days before Donald Trump makes a climbdown on his strikes against Iran.
Jordan Rochester, executive director at Mizuho Bank, said the market “has hesitantly bought into the idea of a renewed war”.
Higher oil and gas prices have led to a surge in government borrowing costs as traders bet that rates will rise to combat any inflation shock.
However, Mr Rochester expects the US president to U-turn on his renewed pressure on Iran in a “Taco moment” – which stands for “Trump Always Chickens Out”.
He said: “Even though a Taco moment may come around, it’s too early to trade that.
“Instead, the resumption of war and decline in energy flows will be the flow that dominates for the next few sessions.
“The market has hesitantly bought into the idea of a renewed war, scarred by the Tacos of Trump earlier this year.
“But at this stage, it’s hard to see a quick resolution and we may have several more days of renewed US strikes, limited oil flows and oil continuing to tick higher.”
09:12am
FTSE drops over fears of higher interest rates
The FTSE 100 fell as higher oil prices raised concerns that the Bank of England will have to push up interest rates.
The UK’s flagship stock index dropped 0.6pc in early trading as the price of a barrel of Brent crude rose 3pc to nearly $86.
Oil and gas prices have risen as the US and Iran exchange fire in the Middle East, with Tehran targetting ships using the Strait of Hormuz.
This has raised concerns of an energy shock pushing up inflation, which has pushed traders to bet on higher interest rates.
Higher rates hit stocks as it tightens financial conditions in the economy.
The domestically focused FTSE 250 was down 0.7pc.
08:45am
Trump will U-turn on tolls, says investment bank
Donald Trump will U-turn on his proposal for the US to charge 20pc tolls on ships using the Strait of Hormuz, an investment bank said.
Jefferies said the US president would “Taco” – short for Trump Always Chickens Out – on the plans announced on his Truth Social platform on Monday (see below).
Economist Mohit Kumar said: “We were surprised by Trump’s announcement. Apart from the large amount of money involved, a US toll does not make sense.
“Till now, the US and other Western countries had maintained that free maritime passage was a core principle and should be respected.
“By announcing a toll, Trump has legitimised Iran’s demand to be able to charge a fee, a concept that was till now unacceptable for the West.
“Pre-war there was no toll on ships passage. And Iran has already stated that they should charge a toll, but at a much lower rate than the 20pc.
“We would expect a Taco at some stage on the toll charge, at least on the magnitude.”
08:30am
Borrowing costs hit two-month high
Britain’s short-term borrowing costs hit their highest level in two months after the surge in oil prices.
The yield on two-year gilts, as UK bonds are known, rose from 4.35pc to 4.44pc on Tuesday, having surged from 4.22pc at the end of last week.
The renewed conflict in the Middle East has pushed up energy prices and stoked fears of higher inflation and interest rates.
In Germany, the two-year yield rose from 2.72pc to 2.8pc, which was its highest level in two years.
08:05am
UK stocks fall after fresh attacks in Strait of Hormuz
The FTSE 100 fell at the open after Iran renewed strikes on tankers in the Strait of Hormuz.
The UK’s flagship stock index fell 0.3pc to 10,464.33 after the US hit Iranian targets again overnight in retaliation for the attacks on vessels which left one sailor dead.
The FTSE 250 declined 0.2pc to 23,314.48 as stocks face pressure from higher oil and gas prices.
07:51am
Interest rates to ‘rise by September’ as oil prices surge
Interest rates will rise by September following the latest jump in energy prices, according to the latest wagers on money markets.
Traders are betting that the Bank of England will be forced to raise interest rates twice this year as higher oil and gas prices threaten to drive up inflation.
Money markets this morning briefly priced in a hike in interest rates from 3.75pc to 4pc in September.
Traders think there is a 97pc chance of a second increase in rates to 4.25pc by the end of the year.
Jim Reid, an analyst at Deutsche Bank, said: “The escalation over Hormuz saw inflation concerns creep back into play yesterday, with investors pricing in more rate hikes from central banks.”
The Bank of England uses higher interest rates as a tool to dampen demand in the economy, which can help quell rising inflation.
Policymakers have a target of keeping inflation at 2pc. It stood at 2.8pc in May.
07:39am
Borrowing costs to surge amid Iran turmoil
The cost of government borrowing has risen again as the fresh tensions in the Middle East raise fears about low growth and high inflation.
The yield on 10-year gilts, a benchmark for what the Treasury pays to borrow money in financial markets, surged from 4.87pc to 4.97pc on Monday.
UK bond trading begins at 8am but there has already been a sell-off in European government bonds, with yields rising in Italy, Portugal and the Netherlands.
It comes as traders bet that central banks will be forced to raise interest rates to combat the inflation threat caused by higher oil and gas prices.
Jim Reid, an analyst at Deutsche Bank, said the fighting has “revived fears around stagflation”.
He said: “The escalation over Hormuz saw inflation concerns creep back into play yesterday, with investors pricing in more rate hikes from central banks.”
07:24am
Gas prices rise as US launches more strikes
Gas prices hit a three-month high after the US launched fresh strikes on Iran following attacks on ships in the Strait of Hormuz.
Dutch TTF, the benchmark for Europe, rose as much as 3.4pc to €53 per megawatt hour, its highest level since April.
The US launched strikes on Iran overnight, hours after Donald Trump said Washington is “reinstating” a blockade on Iran in the Strait of Hormuz.
However, Iran’s oil minister said its exports are continuing as usual despite the cancellation last week of a 60-day waiver of US oil sanctions.
Mohsen Paknejad said on his official Telegram account that Iran’s oil exports would face no problems.
07:07am
Good morning
Thanks for joining me. Oil prices surged to the highest level in a month after the US launched a third night of strikes on Iran.
Brent crude, the international benchmark, rose by 3pc to more than $85 a barrel as Donald Trump also reimposed a blockade on Iranian ports.
Oil prices had leapt nearly 10pc on Monday as the ceasefire in the Middle East was left in tatters and the US president said America would charge a toll for protecting the Strait of Hormuz.
The US military launched five-hours of strikes which sought to “degrade Iran’s ability to attack commercial shipping”.
The United Arab Emirates said Iran struck two ships in the strait overnight, killing one crew member.
Mr Trump said Monday that the United States was “taking over” the waterway, where a fifth of the world’s oil and gas exports pass during peacetime.
He said the US would slap a toll of 20pc on all cargo shipped through the strait, in an announcement that drew mockery from Iran and accusations of “piracy” from critics.
Mr Trump said a deal with Tehran was still possible even as attacks were carried out. Here is what you need to know.
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What happened overnight
Oil prices climbed as fighting intensified in the Middle East.
The price of Brent crude climbed to just over $84 a barrel after soaring nearly 10pc on Monday. US benchmark crude was up 1.4pc at $79.20 a barrel.
Oil prices are still below their wartime peak of more than $126 a barrel, but uncertainty over the future stability of supplies deepened as the US and Iran each asserted they controlled the Strait of Hormuz.
The US launched more strikes on Iran overnight after Donald Trump said Washington was “reinstating” a blockade on Iran in the strait.
Fighting in the region has kept oil tankers from using the waterway to deliver crude to customers from the Persian Gulf, driving up fuel prices worldwide.
Meanwhile Asian shares declined, dragged lower by losses for artificial-intelligence stocks.
In Asian trading, Tokyo’s Nikkei 225 lost 1pcto 66,574.96 and the Kospi in South Korea declined 3.2pc to 6,589.37.
The Shanghai Composite index lost 0.8oc to 3,884.32, even though the government reported that China’s exports jumped 27pc in June from a year earlier as adoption of artificial intelligence drove strong demand for computer chips and other technology.
Hong Kong’s Hang Seng edged 0.1pc higher, to 24,230.46, while in Australia, the S&P/ASX 200 shed 0.5pc to 8,767.00.
On Monday on Wall Street, the S&P 500 fell 0.8pc, coming off its fourth winning week in the last five. The Dow Jones Industrial Average dropped 0.3pc, and the Nasdaq Composite sank 1.6pc.