Brent crude tops $100 a barrel
It was a case of more of the same yesterday really. Oil prices rose further, with Brent crude topping $100 p/b as Iran insisted the Strait of Hormuz must remain “closed”, bond yields were higher, stocks were lower, while the dollar continued its appreciation on FX markets. The latter strengthened by half a percent or so against both the euro and sterling and has extended its gains – and then some – overnight. It is currently trading at around $1.1440 vis-a-vis the single currency, its best level since late July last year, and at about $1.3260 versus the pound, just shy of last week’s 2026 to date high of circa $1.3250. EURGBP is holding a whisker above its year to date low, trading at £0.8625.
Government bond yields rose further. US, German and UK 2-year yields increased by 5-10bps as the market pared back Fed rate cut expectations – less than one 25bps cut is now priced in for 2026 – and ratcheted up ECB and BoE rate hike bets – with almost 50bps and 20bps of tightening now expected for this year respectively. In equity markets, US stocks underperformed (which has been a rare enough occurrence since the war started) with the S&P 500 shedding around 1.5%, while the Stoxx Europe 600 closed around half a percent lower. The futures market, meanwhile, suggests there won’t be any relief for stocks today.
The International Energy Agency says “the war in the Middle East is creating the largest supply disruption in the history of the global oil market.” It notes in its latest monthly oil market report that, “with crude and oil product flows through the Strait of Hormuz plunging from around 20 mb/d before the war to a trickle currently, limited capacity available to bypass the crucial waterway, and storage filling up, Gulf countries have cut total oil production by at least 10 mb/d”, adding that “in the absence of a rapid resumption of shipping flows, supply losses are set to increase.” Following a near 10% increase yesterday, Brent crude is trading at about $102 a barrel this morning.
The UK economy didn’t grow at all in January according to data published a short while ago, with GDP flat on the month after increasing by 0.1% in December. GDP did grow by 0.2% over the three months to January though, having contracted slightly in August-October, with increases in output in manufacturing and services more than offsetting a decline in construction output.
It’s a busy enough day in terms of economic data. PCE inflation – the Fed’s target measures of inflation – for January, job openings & layoffs (January), consumer spending (January), consumer confidence (March), and a 2nd estimate of GDP for Q4 2025 are all due in the US, which industrial production for January is scheduled in the Euro area.