Stock markets tumble further as oil prices soar above 100 dollars a barrel

Derren Nathan, head of equity research at Hargreaves Lansdown, said: “Save for the Vix which measures volatility in the US market, investors in global stock markets are staring at red screens this morning after a weekend of intense hostilities in the Middle East.

“By virtue of their time zone, Asian markets were the first to take a step down in reaction to Monday morning’s oil price spike which at one point had climbed over 20 per cent.

“Donald Trump’s been clear around his intention to drive regime change in Iran, and also that the succession of Ali Khamenei by his son Motjaba would be unacceptable.

“Motjaba Khameini’s appointment yesterday as the country’s supreme leader will do little to reassure markets that an end to the violence is in sight.

“The FTSE’s expected to lose around one per cent at the open, a similar loss to that seen on Friday, with S&P 500 and NASDAQ futures both down around 1.6 per cent.

“At the time of writing some of the froth had come off the top with Brent Crude trading at around $108 per barrel down from earlier highs of $116.

“Oversupply in the global oil market has been a dominant theme in recent months, but a 70 per cent production cut at Iraq’s three main oilfields, and a sharp fall in output from Kuwait could be followed by similar moves in the UAE and Saudi Arabia as storage reaches capacity.

“Until the Strait of Hormuz can be securely re-opened producers will be reticent to turn the taps back on, and even if that decision is made, there can be a significant lag until oil and gas wells return to full flow.

“Friday’s surprise drop of 92,000 in US non-farm payrolls was another fly in the ointment.

“Ordinarily signs of a slowing labour market can provide support to more doveish member of the Fed but recent events have put inflation worries back on the table with markets now not pricing in a further rate cut until September at the earliest.

“That’s also been reflected in a rise in treasury yields following the initial strikes on Iran with 10-year yields rising another six basis points today to 4.2 per cent.

“The US currency has also responded with the dollar having recouped nearly all of its earlier year-to-date losses.

“The waning optimism for the path of lending rates is also challenging gold’s safe-haven status.

“The yellow metal is still likely to play a part in diversified portfolios but the near-term outlook for precious metals and other asset classes looks increasingly unpredictable.

“Rather than trying to second guess geopolitical outcomes and market gyrations, investors would be wise to stay invested in a diverse portfolio that aligns with their financial goals.

“Portfolios with exposure to different asset classes, geographies and styles will be most robust against uncertainty.”