Oil at three-week high as US-Iran peace talks stall
Good morning, and welcome to our rolling coverage of business, the financial markets, and the world economy.
The new week begins with the oil price rising, again, as the stalled US-Iran peace talks threaten to extend disruption to crude supplies from the Middle East.
Brent crude has jumped about 2% this morning to a high of $107.97 a barrel, the highest level since the two sides agreed a ceasefire on 7 April.
Prices rose after Donald Trump cancelled his plan to send US envoys Steve Witkoff and Jared Kushner for ceasefire talks in Pakistan on Saturday, saying “too much time” has been “wasted on travelling”.
The US president then doubled down on this position, telling Fox News:
“If they want to talk, they can come to us, or they can call us. You know, there is a telephone. We have nice, secure lines.”
However, there are signs of positive developments… Axios are reporting that Tehran has given the US a new proposal to reopen the strait of Hormuz, and end the war, with nuclear negotiations postponed for a later date.
So, geopolitics will continue to dominate the markets, at the start of a big week, with several big central banks taking interest rates decisions in the days ahead.
As Mohit Kumar, economist at Jefferies, explains:
Talks have stalled between US and Iran as Iran has stated that it will not negotiate till the US blockade remains in place, while US has stated that it doesn’t know who it is negotiating with.
Our base case remains that we are moving towards a deal but tail risk of short term escalation remains. It is not in the interest of either parties to escalate further. The latest Iran proposal shows the wiliness of Iran to negotiate, while Trump already wants a deal. Hence, we believe that we will eventually move towards a deal, but with some speed bumps along the way.
The agenda
Key events
Moody’s lifts outlook on China’s credit rating
Credit rating news: Moody’s have lifted their outlook for China’s government debt to stable from negative, and affirmed its A1 rating.
Moody’s says this reflects its assessment that economic and fiscal strength will be resilient to ongoing domestic, trade and geopolitical challenges.
Moody’s explains:
While export growth will likely moderate, the competitiveness and resilience of Chinese exports to rapid changes in the global trade environment supports our expectation that GDP growth will slow only gradually over the medium term.
Meanwhile, government policies that prioritize investment in high-productivity sectors while managing supply imbalances will improve capital efficiency. We expect policy makers will manage the debt resolution process for regional and local governments (RLGs) in a controlled fashion, even as general government debt increases given substantial policy support to the economy.
Drivers across most of the UK are missing out on a drop in wholesale fuel prices, new data shows.
The AA reports that last week, the average pump price of diesel across the country dropped from an average of 192.0p a litre to 191.0p a litre.
That’s just a tenth of a 10p-a-litre fall in diesel costs heading to UK fuel stations, the AA says.
The exception is Northern Ireland, where supermarkets have managed to cut diesel prices by nearly 4p-a-litre.
The AA reports:
Across the rest of the UK, the cheapest area for petrol was Yorkshire and Humber at an average of 156.0p a litre at the pump, with the South East was highest with an average of 158.8p.
Diesel in Yorkshire and Humber stood at an average of 189.7p a litre while in the South East it was 191.8p.
Oil now over $108
The oil price is continuing to rise this morning, now up 2.5% at over $108 a barrel.
The lack of progress towards a peace deal between the US and Iran is weighing on the market, despite Axios’s report that Tehran has made a new proposal to Washington DC to reopen the strait of Hormuz.
Pound at one-week high against the dollar
The pound has hit its highest level against the US dollar in just over a week.
Sterling has gained 0.2% against the dollar to $1.355 this morning, its highest level since Friday 17 April.
The dollar has dropped this morning, as investors anticipate change at the top of the US Federal Reserve.
Yesterday, Republican Senator Thom Tillis said he will allow Federal Reserve chair nominee Kevin Warsh to face a vote in the Senate. That should clear the way for Donald Trump’s choice of Fed chair to take control of the US central bank.
Tillis dropped his opposition to a vote on Warsh after the Department of Justice said on Friday that it would drop its criminal investigation into current Fed chair Jay Powell, whose term ends next month.
German chemicals giant BASF is raising some of its prices for the second time since the Iran war began.
Bloomberg has the details:
The German manufacturer’s customers will see prices go up by an additional 25% on products in its antioxidant, process stabilizer and light stabilizer portfolio for plastic applications, BASF said Monday. The increase comes on top of a 20% hike announced on March 4 and is effective immediately.
BASF cited “substantial” gains in raw material, energy and logistic costs due to the Middle East conflict.
Emerging markets at record high, but can risk rally last?
Emerging market stocks have hit record highs today, as optimism over the AI sector drove stocks higher in Asia.
MSCI’s gauge of global emerging market shares has risen by 1.3%, having already risen in the previous four weeks.
That underlines how the markets have bounced back from their initial slump when the Iran war began – with the US and Japanese markets also at record highs – even though the conflict is not resolved.
Capital Economics has suggested that the current risk rally is on borrowed time while the strait of Hormuz remains closed
The chief markets economist, Jonas Goltermann, says:
If the diplomatic and military stalemate between the US and Iran continues, and the strait of Hormuz remain largely closed, policymakers and market participants will find it increasingly difficult to keep “looking through” the crisis.
The widespread assumption that the ongoing disruption to energy supply will generate only limited economic damage can probably sustain investors’ optimism for a while yet. But at some point the situation on the ground needs to actually improve, or that optimism will presumably start to fade.
China blocks Meta’s $2bn acquisition of AI startup Manus
Newsflash: Beijing has decided to block Meta Platforms from aquiring agentic AI startup Manus in a $2bn deal.
China’s state planner has prohibited foreign acquisition of Chinese artificial intelligence startup Manus, ordering involved parties to cancel the transaction, the National Development and Reform Commission said on Monday (via Reuters).
The deal had caused controversy in China, sparking claims that it was an attempt to hollow out the country’s technology base,
Last year, Forbes called Manus’s product “a revolutionary AI agent capable of independent thought and action”, saying:
Manus is not just another chatbot, nor is it merely an improved search engine dressed in futuristic branding. It is the world’s first fully autonomous AI agent, a system that doesn’t just assist humans — it replaces them.
Adidas shares jump after London marathon
Shares in athletic apparel and footwear company Adidas have jumped by almost 1.75% in early trading after three of its athletes shone at the London Marathon yesterday.
Sabastian Sawe and Yomif Kejelcha both smashed the two-hour barrier in the men’s marathon race, and Tigist Assefa set a women-only world record in the women’s race.
All were wearing Adidas’s Adizero Adios Pro Evo 3 shoe, and the company will be hoping for a sales boost from runners looking to lower their own times.
Patrick Nava, general manager at adidas Running, says:
The adidas family is incredibly proud of Sabastian and Tigist’s historic achievements, marking the fastest times humans have ever run in a marathon.
This is a testament to the years of hard work and dedication they have made, alongside our innovation team, who have built a supershoe which breaks new ground in the Adizero Adios Pro Evo 3.”
Shares in Adidas have risen to €138.55, up €2.30 this morning.
Unicredit also have a note out on the oil market this morning, in which they warn:
The Iran war has triggered one of the largest disruptions to physical oil supply in modern history. While de‑escalation could ease some geopolitical risk premiums, the damage to production, exports and logistics means markets are unlikely to quickly return to pre‑war conditions.
Goldman Sachs raises oil price forecast as war disruption hits production
The deadlock in the Middle East confict has prompted Goldman Sachs to raise its oil price forecast.
Goldman Sachs now estimate that Brent crude will trade at about $90 a barrrel in the last quarter of this year, up from an earlier projection of $80. US crude is forecast to average $83 in October-December, up from $75 before.
Goldman blames “lower Persian Gulf production” for the upgrade, telling clients:
We now assume a normalisation in Gulf exports by end-June (v mid-May prior) and a slower Gulf production recovery. The economic risks are larger than our crude base case alone suggests because of the net upside risks to oil prices, unusually high refined product prices, products shortages risks, and the unprecedented scale of the shock.
Goldman’s analysts estimate that 14.5m barrels a day of Persian Gulf crude production has been lost, leading to a record drawdown of global oil inventories of 11m-12m barrels a day this month.
The jump in oil prices will lead to ‘softer demand’, they explain:
We assume that global oil demand falls on a year-over-year basis by 1.7mb/d in 2026Q2 and 0.1mb/d in 2026 given the jump in refined product prices. Because extreme inventory draws are not sustainable, even sharper demand losses could be required if the supply shock persists longer.
Goldman also warns that the risks to its forecasts are to the upsides, and lay out three scenarios for how events could unfold:
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Adverse scenario: Brent 2026Q4 would average just over $100 assuming Gulf exports only normalise by end-July.
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Severely adverse scenario: Brent 2026Q4 would average at nearly $120 assuming Gulf exports normalise by end-July and 2.5mb/d of persistent reduction to Gulf capacity. This 2.5mb/d of scarring is equivalent to Hormuz flows not recovering above 70% (till pipeline capacity is expanded).
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Benign scenario: Brent 2026Q4 would average just under $80 assuming Gulf exports normalise by mid-June, no capacity reduction, and stronger US and core OPEC supply responses.
[Goldman had previously trimmed their forecast for the oil price earlier this month, after the US-Iran ceasefire was announced]
Supermarket chain J Sainsbury is the top faller on the FTSE 100 in early trading, after a broker downgrade.
Goldman Sachs have cut their rating in Sainsbury’s from ‘buy’ to ‘sell’, lowering their share price forecast to 335p from 390p.
In response, Sainsbury’s shares are down 3.4% to 333p.
European stock markets have opened modestly higher, as investors try to assess the situation in the Middle East.
Axios’s report that Iran has given the US a new proposal to reopen the strait of Hormuz may have brightened the mood a little.
Germany’s Dax index is up 0.4% in early trading, with France’s CAC 40 up 0.25%.
The UK’s FTSE 100 index is flat, though.
This week is going to be extremely busy for financial news.
Jim Reid, market strategist at Deutsche Bank, explains:
Looking ahead, with central bank meetings for every G7 country this week — alongside 44% of the S&P 500 reporting by market capitalisation, including five of the Mag 7 — it is shaping up to be a blockbuster week, even before factoring in ongoing Iranian war newsflow.
The Bank of Japan meets tomorrow, followed by the Fed and the Bank of Canada on Wednesday. Thursday then brings decisions from the ECB and the Bank of England. All are expected to remain on hold, but the key question will be how each central bank’s reaction function is shaped by the conflict and the associated stagflation risks.
European gas prices are rising a little at the start of trading.
The month-ahead UK gas contract is up 0.8% at 112.8p a therm – up from 80p before the Iran war began but below the high of 180p hit in mid-March.
Continential European gas is up a similar amount; the next-month Dutch TTF Natural Gas Futures contract has risen to €45.21 a megawatt hour.
Japan’s Nikkei hits record high over 60,000 points on peace talk hopes
Hopes of a breakthrough to end the Middle East conflict have pushed Japan’s stock market to a new record high.
The Nikkei 225 index has ended the day at a new closing high, up almost 1.4% to hit 60,537 points.
Stocks jumped after Axios reported that Iran has given the US a new proposal to end their war, which helped to calm nerves after President Trump cancelled his envoys’ trip to Pakistan for peace talks.
Ipek Ozkardeskaya, senior analyst at Swissquote, says:
The mood is slightly better this morning than it was into the weekend, as Iran reportedly offered the US a proposal to reopen the strait of Hormuz — a move that could pave the way for the continuation of peace talks between the two parties.
Predicted house price growth in UK halved due to Middle East conflict
UK estate agent Knight Frank has halved its house price growth predictions for this year, citing the economic shocks caused by the Iran conflict.
Knight Frank now expects UK house price growth of 1.5% this year, down from a forecast of 3% last September. Growth is then expected to rise to 3% in 2027, down from 4% before.
Tom Bill, head of UK residential research at Knight Frank, says:
The Middle East conflict has pushed mortgage rates higher, dampened buyer sentiment and fuelled speculation about how the government will respond to the resulting economic shock.
This hat-trick of headwinds means we have revised down our near-term house price forecasts.
Oil at three-week high as US-Iran peace talks stall
Good morning, and welcome to our rolling coverage of business, the financial markets, and the world economy.
The new week begins with the oil price rising, again, as the stalled US-Iran peace talks threaten to extend disruption to crude supplies from the Middle East.
Brent crude has jumped about 2% this morning to a high of $107.97 a barrel, the highest level since the two sides agreed a ceasefire on 7 April.
Prices rose after Donald Trump cancelled his plan to send US envoys Steve Witkoff and Jared Kushner for ceasefire talks in Pakistan on Saturday, saying “too much time” has been “wasted on travelling”.
The US president then doubled down on this position, telling Fox News:
“If they want to talk, they can come to us, or they can call us. You know, there is a telephone. We have nice, secure lines.”
However, there are signs of positive developments… Axios are reporting that Tehran has given the US a new proposal to reopen the strait of Hormuz, and end the war, with nuclear negotiations postponed for a later date.
So, geopolitics will continue to dominate the markets, at the start of a big week, with several big central banks taking interest rates decisions in the days ahead.
As Mohit Kumar, economist at Jefferies, explains:
Talks have stalled between US and Iran as Iran has stated that it will not negotiate till the US blockade remains in place, while US has stated that it doesn’t know who it is negotiating with.
Our base case remains that we are moving towards a deal but tail risk of short term escalation remains. It is not in the interest of either parties to escalate further. The latest Iran proposal shows the wiliness of Iran to negotiate, while Trump already wants a deal. Hence, we believe that we will eventually move towards a deal, but with some speed bumps along the way.
