Key events
Oil on track for biggest weekly gain in over a year
The oil price is on track for its biggest monthly gains in over a year, as tensions in the Middle East have risen alarmingly.
Brent crude, the international benchmark, has climbed by 7.8% so far this week, to $77.60 per barrel, a gain of $5.60.
That would be its biggest percentage gain since February 2023, and largest dollar rise since October 2023.
Fears of potential supply disruption have lifted oil.
It jumped on Tuesday, when Iran launched its missile attack on Israel, and again yesterday when US president Joe Biden said the US was discussing with Israel the possibility of Israeli strikes on Iran’s oil infrastructure.
Brent crude is currently at a one-month high.
But, it’s still effectively flat for the year, and much lower than after Russia’s invasion of Ukraine in 2022 when oil jumped over $100/barrel.
Derren Nathan, head of equity research at Hargreaves Lansdown, says the potential for disruption to Iranian production has been the key driver of the oil price this week.
Nathan explains:
Despite US sanctions, Iranian exports have increased to 1.7mn barrels per day this year.
But to put that in context, OPEC+ nations have treble that amount in spare capacity, so unless other producing nations suffer disruption, they should be able to take up that slack. However, a more worrying scenario would be the closure of the Straight of Hormuz, a vital shipping channel between Iran and Oman which has recently carried as much as 15mn barrels per day of crude, leaving potential for a significant oil price shock if marine traffic is blocked.”
Indroduction: A bad week for the pound
Good morning, and welcome to our rolling coverage of business, the financial markets, and the world economy.
After a bruising few days, the pound is on track for its worst week in over a year.
Sterling has lost around 1.7% against the US dollar so far this week, as it dropped by 2.2 cents since Monday to around $1.314 this morning. That puts the pound on track for its biggest weekly loss since July 2023 – any weaker, and we’ll be back to February 2023.
It has weakened as global investors have rushed into safe-haven assets, while economists are anticipating faster cuts to UK interest rates than previously expected.
As we covered yesterday, the pound hit a three-week low against the dollar on Thursday after Bank of England governor told The Guardian that the BoE could become “a bit more activist” and “a bit more aggressive“ in its approach to lowering rates, if inflation pressures keep weakening.
That put the skids under the pound:
Before Bailey’s comments, traders had expected the BoE to be more cautious than its US and eurozone counterparts.
Not any more! RBC Capital Markets, for example, now predict the Bank could cut rates by a quarter-point at its next five meetings, bringing rates down from 5% today to 3.75% by next May.
The money markets predict slightly less easing, though – they indicate rates could have fallen to 4% by next May.
The second factor hitting the pound is a surge of money into the US dollar, which is trading near a six-week high against a basket of currencies.
Investors have sought out the safety of the greenback as Middle East tensions have risen this week, with Iran launching a missile attack at Israel and the Israeli military striking parts of Beirut.
Hubert de Barochez, senior markets economist at Capital Economics, fears the pound could be heading for more weakness, telling clients:
The British pound fell sharply on Thursday, and we suspect that it will weaken more over the next year or so given our dovish view of Bank of England policy, the currency’s still-high valuation, and stretched speculative positioning.
Also coming up today
We’ll hear from Huw Pill, one of the more hawkish policymakers at the Bank of England, this morning.
Investors are bracing for the latest US jobs report today, the last-but-one non-farm payroll before the US presidential election. It’s expected to show around 140,000 jobs were created in America last month, very slightly lower than in August.
And in the UK, the government has pledged nearly £22bn to fund carbon capture and storage projects as it tries to hit climate targets.
The chancellor, prime minister and the energy secretary, Ed Miliband, will unveil the details on a visit to the Liverpool city region on Friday declaring a “new era” for clean energy jobs.
The plan means Rachel Reeves is paving the way for a multibillion-pound increase in public-sector investment at the budget…
The agenda
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8.30am BST: Eurozone construction PMI for September
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8.55am BST: Bank of England’s chief economist Huw Pill to speak at the Institute Chartered Accountants in England and Wales annual conference
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9am BST: UK new car registrations for September
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9am BST: UN food price index for September
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9.30am BST: UK construction PMI for September
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1.30pm BST: US non-farm payroll jobs report for September