Relief floods in as US eases off hostilities in Iran conflict

Susannah Streeter, chief investment strategist at Wealth Club, said: “The wild streak of enthusiasm which hit markets amid hopes for a major de-escalation in the Iran conflict is tempering today. There’s a realisation that there are more hurdles to climb for a longer-term resolution to be agreed, even though Iran is reported to be studying a US peace proposal aimed at formally ending the conflict. President Trump is still threatening to resume strikes if a deal isn’t struck, so there’s more caution around. Oil prices reflect this, with the benchmark Brent crude fluctuating. It edged back up above $101 dollars a barrel before easing off again. But at this level, oil prices remain around 40% higher than before the war broke out, demonstrating there is still high uncertainty about the outcome.

“AI frenzy is also behind the march of indices in the US and in Asia to fresh record levels. AMD, Advanced Micro Devices, ignited the latest rally, putting more heat under tech stocks caught up in the exuberance. The semiconductor designer and manufacturer saw a surge in orders with revenue rising 38% year on year for the first quarter. Demand for processing power for data centres appears insatiable with revenue shooting up by a huge 57%. Right now, as the AI build-out phase accelerates, the picture is looking super-rosy, but if appetite wanes or future revenues don’t keep pace with the mega spend trend, valuations may take a hit. But for now the AI juggernaut just keeps on rolling.

“The escalating conflict involving Iran and the wider Middle East is proving to be a double-edged sword for Shell, severely disrupting LNG volumes while simultaneously lifting energy prices and creating more profitable trading conditions. The spikes in volatility and scorching prices ignited by the conflict have sharply increased activity for its trading arm, and boosted production margins, but at the same time the company is bracing for fallout from the damage wreaked to vital infrastructure in the region. For now though it’s cashing in on the surge in prices. Shell’s underlying profits, measured by adjusted earnings rose approximately 24% year-on-year from $5.6 billion a year previously- beating expectations of $6.36 billion.

“Right now, the closure of the Strait and the energy crunch are benefiting the bottom line. But there is weakness in these figures with gas production down around 4% and management explicitly warned that second-quarter volumes would be sharply lower.

“This is because of Iranian strikes on the huge production sites in Qatar with the Ras Laffan complex and the Pearl GTL facility hit. Work on restoring output is expected to take at least 12 months and the Qatari energy minister had previously warned that it could be a multi-year repair project. Given that LNG is one of Shell’s most profitable divisions, the scale of the reduction is significant.

“This is all having an impact on Shell’s buy-back programme. Although the surge in energy prices is likely to be why the company felt confident enough to launch another $3 billion share buyback programme despite net debt rising and free cash flow falling. However, the company is slowing the pace of quarterly buybacks from $3.5 billion previously to $3 billion. So it’s a sign that more caution is creeping in and that management is still keeping an eye on how the conflict will unfold rather than aggressively expanding returns to shareholders further.”