Oil rises and stock markets under pressure as Middle East conflict steps up

Derren Nathan, head of equity research at Hargreaves Lansdown said: “Brent crude oil prices have reversed most of last week’s falls, rising nearly five per cent to over $97 per barrel.

“The Iran crisis has entered its 100th day, and despite President Trump’s continued insistence that a deal to end the conflict and reopen oil transit routes is close, the weekend saw heavy exchanges of fire between Israel, Iran and Iranian proxy Hezbollah in Lebanon, as well as Iranian strikes against Kurdish targets in Iraq.

“US 10-year treasuries are nudging 4.6 per cent today following a blowout jobs report on Friday. Nonfarm payroll increases of 172,000 came in 100 per cent above analyst expectations, raising fears that the US economy is overheating. That’s certainly the view debt markets have taken, with yields adding around 0.2 percentage points since the report broke and odds moving in favour of a quarter-point rate hike from the Fed by October.

“However, there are some signs that the current strength in hiring is more structural than cyclical. The beat wasn’t accompanied by an acceleration in wage growth.

“Both labour market participation and unemployment were flat at 61.8 per cent and 4.3 per cent respectively, suggesting that at least some of Friday’s beat came from supply constraints rather than excess demand.

“Much of the strength came from local government and health care, both sectors which have been considered under-staffed for some time, with the latter also seeking to fill a skills shortage. Neither sector is typically driven by credit-fuelled consumer enthusiasm. The same can’t be said for leisure and hospitality, which saw the biggest hiring spree last month. In this case however, the imminent kick-off of the FIFA World Cup on Thursday is likely to be a key driver.

“Longer term, the bull hypothesis is that productivity gains from AI can support job growth. While bots may step into some roles, increased productivity, faster workflows, and new products and services could drive underlying improvements in the labour market.”