Closing summary: Gulf attacks cast shadow, but demand concerns remain focus
Heightened tensions in the Gulf usually cause oil investors to sit up and listen. The attacks on two tankers in waters between Oman and Iran yesterday caused a significant spike in prices – but investors are still concerned about future demand.
US President Donald Trump blamed Iran for the attacks, but confusion has taken hold over the events after separate reports on what happened appeared to contradict each other.
Nevertheless, Trump today talked tough against Iran, saying that any efforts for them to close the straits of Hormuz, a key trade route, would not last “for long”.
The area is a lynchpin in the international oil trade. The US Energy Information Administration (EIA) calls it the world’s worst “chokepoint”, according to the Guardian’s guide to the incident. In 2016, 18.5m barrels of crude were transported through the channel.
Yet despite the strong words from Trump and his administration, oil traders have remained relatively sanguine on Friday, with Brent crude futures prices gaining less than 1% for the day, before falling back.
Prices remain lower than they were at the start of the week, mainly because of the concerns over the global economy which have plagued investors in recent months. A flight to safe-haven assets was again in evidence on Friday, with yields on German 10-year government debt hitting fresh record lows. Yields move inversely to prices, falling when demand rises.
The Bond Market Panic due to global recession and trade fears keeps driving yields lower. German 10y yields hit fresh lows at -0.26%, 10y Portugal yields at ridiculously 0.6%, hit a fresh low as well. pic.twitter.com/CTr8KOPnEx
— Holger Zschaepitz (@Schuldensuehner) June 14, 2019
In the UK, meanwhile, shares were on course for a marginal gain during the week with two hours of trading remaining.
Support services and construction firm Kier Group was the only major mover on London’s large- or mid-cap indices, falling by more than 30% after reports that it is planning to sell its housebuilding unit.
Thanks for reading today. Join me on Monday for more live coverage of business, economics and markets. JJ
The International Monetary Fund is urging countries to protect spending on health, education and vulnerable groups amid growing concern among its members about excessive levels of inequality, its managing director has said.
Announcing the change of approach in an interview with the Guardian’s Larry Elliott, Christine Lagarde said it was now politically incorrect to argue against the impact of social spending on growth and stability.
The IMF, she said, had been through a process of introspection after being criticised in the past for imposing anti-poor spending cuts on governments facing financial crises.
Read more here:
US shares have fallen (but only mildly) at the Wall Street open.
The S&P 500 has dipped by about 0.13%, while the Dow Jones industrial average lost 0.1%. The Nasdaq fared slightly worse, down by 0.4%.
European stocks have moderated some of their earlier declines, with the FTSE 100 now down by 0.5% at 7,332 points. Germany’s Dax has almost halved its losses for the day, down by 0.5%
Daughter of ENRC founder charged by Serious Fraud Office
The Serious Fraud Office (SFO) has charged the daughter of one of the founders of ENRC, the miner that delisted from the FTSE 100, in connection with a corruption investigation.
Anna Machkevitch is the daughter of Alexander Machkevitch, one of the founders of Eurasian Natural Resources Corporation (ENRC). She is required to attend Westminster magistrates court on Friday 5 July 2019, the SFO said.
Here is the SFO’s statement:
Ms Machkevitch, 36, is the director of London-based ALM Services UK Ltd and the Machkevitch Foundation. The SFO alleges that in January 2019 she failed to supply documents required by the SFO, contrary to Section 2 of the Criminal Justice Act 1987.
Failing to comply with a Notice given by the SFO without reasonable excuse is a criminal offence and carries a prison sentence of up to 6 months and an unlimited fine.
The SFO’s investigation into ENRC is ongoing and focused on allegations of serious fraud, bribery and corruption in relation to the acquisition and retention of substantial mineral assets.
Proceedings are now active for the purposes of the Contempt of Court Act 1981, and it is important that nothing is said or published that could jeopardise Ms Machkevitch’s right to a fair trial.
The law firm representing Machkevitch has been contacted for comment.
Updated
Donald Trump says Iran could not close Strait of Hormuz "for long"
Donald Trump has repeated the allegation that Iran was responsible for Thursday’s attack on two oil tankers in waters between Oman and Iran.
In an interview with Fox News, Trump said the strait of Hormuz, a vital trade artery, will not be closed, but if it is, it won’t be for long, according to the AFP news agency.
Iran will not get nuclear weapons, Trump said, speaking on his 73rd birthday.
Updated
US stock market futures are pointing to selling in early trade on Wall Street, with tech firms in the crosshairs.
S&P 500 futures point to a 0.3% decline, while the Dow Jones industrial average is set for a 0.2% fall.
However, the tech-heavy Nasdaq could see a fall of as much as 0.8%. Chipmaker Broadcom warned of a broad slowdown in demand due to trade tensions and the US ban on Chinese mobile phone company Huawei Technologies.
As traders in London approach lunchtime, the share selloff has deepened.
The FTSE 100 has fallen by 0.6%, while the Dax is now down by 0.9%, amid a broad-based move to safer assets.
Speaking of Boris Johnson, news just in: he will face his rivals in a TV debate, but only after the second round of voting in the Conservative party leadership race.
Johnson had previously appeared unwilling to appear in debates, but has now relented.
Foreign secretary and rival leadership contender Jeremy Hunt had earlier taunted Johnson using the latter’s hero, wartime prime minister Winston Churchill. He said:
What would Churchill say if someone who wants to be prime minister of the United Kingdom is hiding away from the media?
Johnson in September expressed enthusiasm for letting the public see “as many of them [debates] as possible”.
"My feeling is that they are essential and the public does need to see interchange between their potential leaders" - Former foreign secretary Boris Johnson has backed Sky News' #MakeDebatesHappen campaign.
— Sky News (@SkyNews) September 28, 2018
For more, head here: https://t.co/VcsYZb7wu3 pic.twitter.com/FcHbxo7Lzc
An influential committee of MPs has criticised the government for its failure to curb “extravagant” boardroom pay packages.
Rachel Reeves, the Labour MP who chairs the business, energy and industrial strategy committee, said: “The government’s response to our report on executive pay represents a missed opportunity to rein in bosses’ pay and link CEO pay to that of the rest of their workforce.
The public are rightly appalled by extravagant CEO pay packages. The success of a business is rarely solely down to the chief executive and there should be greater efforts to ensure that workers have a share in the profits too.
You can read more here:
This comes as – for the first time in what feels like a while – major tax cuts for the wealthiest Britons are on the table from the bookmakers’ favourite to be prime minister, Boris Johnson.
Here’s a graph (from earlier in the week) from the Resolution Foundation showing who will benefit.
A small bit of good news in the sorry tale of the collapse of Jamie Oliver’s restaurant chain: the final three surviving UK outlets have been saved.
SSP Group, an airport food operator, has taken over operations of the three Jamie Oliver food and beverage units at Gatwick Airport.
All 250 members of staff who work across the Jamie Oliver’s Diner, Jamie’s Italian and Jamie’s Coffee Lounge at Gatwick Airport have transferred to SSP as part of the agreement, the company said in a statement.
The company already operates 12 Jamie Oliver units in Austria, Finland, France, the Netherlands, Norway and Spain, with further units planned in Brazil and Bahrain.
Bond yields fall as investors pile into safe havens
Investors have again flocked into bonds, as weaker Chinese data have added to the simmering concerns about global growth.
The yield on the German 10-year bund, which moves inversely to its price, hit a fresh record low of -0.271% on Friday morning – after months of investors buying more bonds.
Gold prices – another traditional safe-haven asset – hit a 14-month high on Friday. Spot gold traded at highs above $1,358 per ounce in morning trading, up by about 1% during the day.
A development in the race to be the next prime minister: it will not be Matt Hancock.
The health secretary bowed to pressure overnight to withdraw from the race and throw in his lot with another contender, according to the Evening Standard. He was reportedly still considering whom to back.
He had hoped to poach supporters from Rory Stewart – another of the more centrist candidates in the race – but Stewart had insisted he was determined to go forward after securing 19 votes to Hancock’s 20.
You can read more here:
A bit of reaction is coming through on those weak Chinese production data.
Franziska Palmas, assistant economist at Capital Economics, a consultancy, said:
Another disappointing batch of activity data in May reinforces our view that growth will probably weaken a bit more this quarter. With consumer and business sentiment likely to sour further as the trade war escalates, additional policy easing will be needed to shore up growth.
Comments yesterday by vice premier Liu He suggested that more stimulus is likely very soon as the Chinese government tries to support growth, but concerns over financial stability will limit the scope of intervention, she said.
Shell Energy Retail’s top boss has apologised to customers after UK energy regulator Ofgem ordered the utility to compensate around 12,000 customers it overcharged on default tariffs – after a price cap was introduced this year.
Reuters reported that Shell Energy Retail overcharged a sum of £100,737 collectively above the level of the price cap between January and March this year, Ofgem said.
The company’s chief executive, Colin Crooks, said in an e-mail to Reuters:
We’d like to apologise to all customers who were temporarily out of pocket.
Quick stocks update: all the major European indices are in the red in mid-morning trading.
The FTSE 100 is down by 0.3%, but Germany’s Dax has widened losses to 0.6%.
The nation is focused on the battle to be the Conservative party’s next leader, but businesses planning for 31 October – the scheduled date of Brexit – cannot wait for a new prime minister before taking action.
The Institute of Directors – one of the UK’s employers’ groups – said its members had so far failed to take advantage of the seven-month delay to Brexit and warned that companies should not put faith in politicians to produce an agreement.
IoD figures showed that less than half of businesses had Brexit plans, writes the Guardian’s Larry Elliott:
It’s mostly fairly quiet on the UK’s large- and mid-cap equity indices, with one notable exception: Kier Group shares have fallen by 17% to near 20-year lows.
The support services and construction group is reportedly planning to sell its housebuilding unit as part of a review to cut its debt and simplify its structure.
Trade credit insurers Euler Hermes and Tokio Marine HCC have also this week withdrawn cover insuring Kier’s suppliers from any potential losses, according to the Times (£).
The company revealed a profit warning earlier this month, prompting comparisons with its former rival, Carillion, which collapsed last year.
Some other interesting snippets from the IEA’s oil report:
Iranian oil exports in May fell by 480,000 barrels per day to 810,000 – and production fell to 2.4m barrels per day, the lowest since the late 1980s.
Iran is under severe economic pressure from US sanctions, and its alleged involvement in yesterday’s Gulf tanker attacks will be the subject of intense scrutiny in the coming weeks.
Meanwhile, the IEA said that oil price rises will be capped by that plentiful supply, preventing inflationary shocks at a time when the global economy is looking shaky. The IEA said:
This is welcome news for consumers and the wider health of the currently vulnerable global economy, as it will limit significant upward pressure on oil prices.
And in a separate report on hydrogen, the IEA said that the gas has “vast potential” to be part of the global economy’s energy mix. Hydrogen production can be used to store energy from solar panels – and hydrogen fuel cells could be particularly useful for forms of transport where heavy lithium batteries are not currently a viable option.
Proud to launch @IEA’s new report on #hydrogen alongside @SekoHiroshige in support of Japan’s #G20 Presidency. The report reviews hydrogen's current situation and recommends concrete steps that can be taken today to scale it up for a cleaner energy future https://t.co/O8NzGdvh8Y
— Fatih Birol (@IEABirol) June 14, 2019
Oil prices may have spiked on Thursday amid concerns that diplomatic tensions could weigh on supply, but it comes at a time when demand is falling, according to the International Energy Agency (IEA).
The intergovernmental agency says that “plentiful supply” from countries who are not members of the Opec oil cartel will be able to meet any growth in demand in the coming year.
The main focus is on oil demand as economic sentiment weakens. In May, the OECD published an outlook for global GDP growth for 2019 of 3.2%, lower than our previous assumption. World trade growth has fallen back to its slowest pace since the financial crisis ten years ago, according to data from the Netherlands Bureau of Economic Policy Analysis and various purchasing managers’ indices.
The consequences for oil demand are becoming apparent. In 1Q19, growth was only 0.3 mb/d [million barrels per day] versus a very strong 1Q18, the lowest for any quarter since 4Q11. The main weakness was in OECD countries where demand fell by a significant 0.6 mb/d, spread across all regions.
In other oil-related news, environmental campaign group Greenpeace has put two more activists onto a rig in a protest against FTSE 100 oil company BP.
Greenpeace has been carrying out rolling protests against BP, including barricading the company’s offices in an effort to prevent them from drilling new oil wells.
Here is more on the latest protests from the Guardian’s Severin Carrell:
The head of the International Energy Agency, Fatih Birol, is in Japan for the G20 meeting of energy ministers.
He said the attacks raise concerns for energy security, according to snap reports.
- IEA Executive Director Birol Says Recent Attacks On Tankers In The Gulf Raise Major Concerns For Global Energy Security And Oil Markets
— LiveSquawk (@LiveSquawk) June 14, 2019
- IEA Is Monitoring Events And Standing Ready To Act If And When Necessary
US Central Command, which controls military operations in the Gulf, made no reference to flying objects in its press release yesterday, which said the crew had found an unexploded “limpet mine”.
The press release said:
At 11:05 a.m. local time USS Bainbridge approaches the Dutch tug Coastal Ace, which had rescued the crew of twenty-one sailors from the M/T Kokuka Courageous who had abandoned their ship after discovering a probable unexploded limpet mine on their hull following an initial explosion.
There has been no independent investigation into the causes of the incident.
Two "flying objects" hit Japanese oil tanker says shipping company boss
The president of the Japanese shipping whose oil tanker was attacked on Thursday has said that it was hit by flying objects – not a torpedo.
Here’s the Reuters report on his comments, in which he said two “flying objects” were responsible for the damage to the tanker:
The Kokuka Courageous was sailing toward the port of Khor Fakkan in the United Arab Emirates after the crew, which had evacuated after the incident, returned, President Yutaka Katada of Kokuka Sangyo told a press conference. It was being escorted by the US Navy, he said.
“The crew told us something came flying at the ship, and they found a hole,” Katada said. “Then some crew witnessed the second shot.”
The crew saw an Iranian military ship in the vicinity on Thursday night Japan time, Katada said.
The other attacked vessel was the Norwegian-owned Front Altair. Tehran has denied that it was behind the attacks.
Chinese industrial production growth at 17-year low
Industrial production in China grew by 5% year-on-year in May, considerably slower than the 5.5% rate expected by economists and a slowdown from the previous month.
The figures, from the National Bureau of Statistics of China, showed that fixed-asset investment growth fell back to 5.6% year-on-year in the January to May period, below the 6.1% expected by economists.
The trade war between the US and China has prompted fears that global growth could suffer.
The FTSE 100 has fallen by 0.2% in the first few minutes of trading on Friday.
Germany’s Dax has lost 0.4%, while France’s Cac 40 has lost 0.2%. Europe’s Stoxx 600 index, which tracks large-cap stocks across the continent, fell by 0.3% at the open.
Introduction: G20 ministers to discuss oil tanker attacks as blame game mounts
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
Ministers from the G20 group of large economies will discuss yesterday’s oil tanker attacks at a meeting in Japan, ahead of a full summit to be held at the end of the month.
The US government has firmly pointed the finger at Iran for the attacks on two tankers – which have seen oil prices jump as investors prepare for rising diplomatic tensions. Tehran denied that it was involved.
One of the attacked tankers was owned by a Japanese shipping company. Japan’s industry minister, Hiroshige Seko, on Friday said that “maintaining energy security” was an “important issue” which would be discussed by energy ministers at the weekend’s meeting, to be held Karuizawa, northwest of Tokyo – ahead of the main meeting in Osaka.
Seko declined to comment on whether Japan would send its armed forces to the Gulf to protect tankers, Reuters reported.
Oil prices continued to rise on Friday morning, with Brent crude futures gaining 0.4% to reach $61.53 per barrel at the time of writing.
Michael Hewson, chief market analyst at CMC Markets UK, said:
The attack on two oil tankers in the Gulf of Oman has raised the geopolitical temperature even further in the region, at a time when it is high already, given the strained relations between the US and Iran. With the US pinning the blame firmly on the Iranians the scope for a misstep is only likely to increase, hence the rebound in oil prices which characterised yesterday’s price action, and has seen prices also push higher this morning.
While oil prices rebounded, the bounce was much shallower than might be expected given that prices are already near five-month lows.
The agenda
- 8am BST: China industrial production (May)
- 9am BST: Italy industrial orders (April)
- 10am BST: Italy inflation rate final estimate (May)
- 1:30pm BST: US retail sales (May)
- 1:55pm BST: Bank of England Mark Carney speech
- 2:15pm BST: US industrial production (May)
