Market snapshot: the reverse indicator and a tech correction

The oil price remains the reverse indicator for equity markets, with other asset classes also playing second fiddle to black gold.

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In turn, on a day-to-day basis, oil traders are scrambling to unpick the mixed messages coming through social media and interviews between the warring parties on the possibility of de-escalation. At the same time, though, the current direction of travel is clear – the oil price has risen by 79% so far this year, and by 50% since the beginning of the conflict.

The tentacles are already spreading through to energy prices, consumer sentiment, business investment and travel. Some countries, such as many of those in Europe and Asia are net importers of energy and therefore worst hit, whereas the US is a net exporter and is therefore suffering rather less by comparison – for the time being.

Oil's latest leg higher again weighed heavily on the main US indices, especially the more growth-driven Nasdaq index, which is now down by 7.9% since the beginning of the year, and by 10% since its more recent high, dragging the index into correction territory. The Dow Jones and S&P500 have also fared badly since hostilities began, now reaching declines of 4.4% and 5.4% respectively in the year to date.

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After the US closing bell on Thursday, the President announced that he would extend the pause on attacks on Iran’s energy facilities until 6 April, giving Iran more time to agree to unfettered access to the Strait of Hormuz. The announcement drove oil lower and US futures higher, although the former is now back into positive territory and futures are paring their gains as investors mull the latest extension, and whether it simply heightens the possibility of a longer conflict.

Heading into the end of the week, there is a further complication. The last few weekends have been rife with new announcements and developments, leaving investors with no chance to react until the start of trading on Monday. As such, there could well be a natural reticence to enter the weekend with any open positions at all.

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Of course, much of the economic data currently coming through relates to February, making the readings all but obsolete. UK retail sales fell by 0.4% last month, slightly better than the 0.7% decline which had been expected, but without reflecting the pressure coming through in March of higher oil prices placing a strain on disposable income. 

Consumer sentiment had been brittle at best even going into the conflict, and the anaemic domestic economy has pushed gilt yields (and therefore potential borrowing costs) higher, while also weighing on the more domestically focused FTSE250, which has long since given up a strong start, standing 5.4% lower in the year to date and down 10% since the war began.

The primary UK index nonetheless attempted a minor relief rally at the open, although far from erasing the losses of the previous day. For the FTSE100 there were few sectoral trends, with individual stocks reflecting news. 

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Metlen Energy & Metals (LSE:MTLN) fell by 8% after announcing that its full-year numbers would be delayed by nine days at the request of its auditors, which was enough to unsettle investors. More positively, promising Phase III results on its COPD trials lifted AstraZeneca (LSE:AZN) shares by more than 3%, adding to a strong run, with the shares having risen by 28% over the last year, and more recently bolstered by a secondary listing in New York. 

The FTSE100 as a whole is now clinging on to gains of 0.6% in the year so far, way off recent highs and inevitably still vulnerable to news out of the Middle East.