Stocks fall after Trump threatens to hit Iran ‘extremely hard’

The yields on UK government bonds, known as gilts, rose on Thursday morning, on the back of Trump’s national address.

The benchmark 10-year gilt yield was up at 4.88% at the time of writing, while the two-year government bond yield had advanced to 4.35%, according to Bloomberg data.

The Middle East conflict has disrupted oil and gas flows through the Strait of Hormuz, pushing energy prices higher and sparking fears about a resurgence in broader inflation.

Wealth Club chief investment strategist Susannah Streeter said: “Governments have been left scrambling to try to limit the impact on companies and consumers, with more rationing of energy likely to come into play.

“The UK government has held off announcing short-term support for sections of society which will be worst hit by the ramp-up in energy bills, with specific help not expected until the autumn.”

She said that the latest rise in 10-year gilt yields makes “government borrowing costs even more onerous”.

“The Middle East is the world’s hotspot right now, as thousands more US troops head to the region, and the heat is radiating across the globe, with inflation set to turn steamy and difficult to handle,” Streeter added.

Sterling fell 0.7% against the dollar (GBPUSD=X) to trade at $1.3214 at the time of writing, as traders eyed the latest developments in the Iran war and the outlook for UK interest rates.

The pound was 0.2% lower against the euro (GBPEUR=X) on Thursday morning at €1.1459.

Bank of England governor Andrew Bailey said in an interview with Reuters on Wednesday that markets have been “getting ahead of themselves” by pricing in interest rate hikes in response to the impact of the Iran war.

Chris Turner, global head of markets and regional head of research for UK & CEE at ING, said that Bailey “appeared to deliver a rate protest” in the interview with Reuters.

“The surge in short-dated UK rates during this Middle East crisis, fuelled by what was perceived as a very hawkish MPC meeting on 19th March, has clearly damaged both business and consumer confidence,” he said. “A key takeaway from yesterday’s interview was that the BoE should fulfil its remit in a way that causes the least damage to the economy and the people.”

Oil prices surged following Trump’s national address on Thursday evening, with Brent crude futures (BZ=F) rising 6.5% at the time of writing to $107.78 a barrel. Meanwhile, West Texas Intermediate (CL=F) futures advanced 6% to $106.11 per barrel.

Hargreaves Lansdown’s Britzman said that oil markets have moved higher once more as “as traders began pricing in the growing risk of disruption to energy infrastructure across the Gulf, amid lingering uncertainty around key shipping routes like the Strait of Hormuz.”

“Comments suggesting military operations in the region could extend for several more weeks have dampened hopes of a near-term resolution, adding a fresh geopolitical risk premium to oil prices,” he said. “That’s come despite a sizeable 5.5 million barrel build in US crude inventories last week, which would typically have weighed on prices but has instead been brushed aside in the current environment.”

Good morning, and welcome back to our markets live blog. As usual we will be taking a deep dive into what’s moving markets, and what’s happening across our global economy.

Looking at the day ahead now, UK foreign secretary Yvette Cooper is set to host a virtual meeting of around 35 countries to discuss how to reopen the Strait of Hormuz.

In terms of economic data, the latest weekly jobless claims and US trade balance in February is due out later today.

Meanwhile, electric vehicle maker Tesla (TSLA) is expected to release its first quarter production and delivery figures on Thursday

Stay tuned for updates throughout the day!