IMF chief warns of broader risks from US strikes on Iran, after oil hits five-month high – business live

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European stock markets are also down in early trading.

France’s CAC has lost 0.65%, Spain’s IBEX is down 0.6%, and Germany’s DAX lost 0.55% at the open.

That’s a fairly muted reaction to the US bombing of Iran over the weekend.

Mohit Kumar of investment bank Jefferies says the markets are waiting to see how Iran reacts, adding:

Current market open suggests that base case is for a token response which will allow Iran to claim a counter-attack but with the aim of de-escalation.

Key would be whether Iran would (or could) close the strait of Hormuz and disrupt global oil supply. With US and Israel planes reported to have almost clear access to Iran’s airspace, the closure of the strait would be practically impossible.

Jefferies’ base case scenario is that we now enter a period of uncertainty lasting a few weeks, but without a sharp escalation.

Kumar cautions that Jefferies are not “fully convinced” by the market’s sanguine reaction, explaining:

We would advise using the limited reaction to reduce risk exposure in equities and credit. We are not geo-political experts. While we agree that Iran’s retaliatory capabilities may be significantly reduced, it could still use drones and smaller weapons to maintain a heightened level of uncertainty for some time.

We don’t see a closure of the Hormuz strait but see possibility of disruption. Any attacks on US interests in the Gulf region could also escalate tensions further.

FTSE 100 opens in the red

The UK stock market has dropped at the start of trading, as traders weigh up the situation in the Middle East.

Airline shares are down, with easyJet (-2.1%) and British Airways parent company IAG (-2.2%) leading the fallers on the FTSE 100 share index. Higher oil prices push up their costs, and the crisis could also force airlines to cancel flights to the region.

BP (+1.7%) and Shell (+1%) are leading the risers.

Overall, the FTSE 100 index is down 23 points or 0.26% at 8751 points, away from the record closing high set earlier this month.

Spectris agrees £3.8bn takeover offer...

The new week has also begun with some takeover excitement in the City of London.

Spectris, the UK-based maker of precision and testing equipment and software, has agreed to be bought by private equity firm Advent in a £3.8bn deal.

Spectris develops high-tech instruments, testing equipment and software used in sectors such as life sciences, automotive, electronics and semiconductors. It is recommending the offer, which is an 84.6% premium to its value before news of Advent’s interest broke earlier this month.

But the battle may not be over. Rival private equity firm Kohlberg Kravis Roberts (KKR) hasn’t abandoned its own interest in Spectris.

KKR just told the City that it has been “engaging constructively” with the board of Spectris, having made its own takeover proposal at the start of June.

While no revised proposal has yet been made, KKR insists it is actively engaged in the advanced stages of due diligence and arranging financing commitments, and urges Spectris’s shareholders to take no action with regards to the Advent offer….

Analysts at RBC Capital Markets say there is “a clear and present risk of energy attacks” in the Middle East, as Iran weighs up its response.

That threat could come from the Iran-backed militias in Iraq that operate near the Basra energy facilities, they suggest.

In a note this morning, RBC point out it may take days, or weeks, before we know the Iranian response, adding:

Above all, we would caution against the knee-jerk “the worst is behind us” hot take at this stage. President Trump may indeed have successfully executed an “escalate to de-escalate” move, but a wider expansion cannot still be ruled out at this juncture.

We may be in the Rumsfeld “unknown knowns” matrix in this nine-day Middle East military conflict.

Stock markets across the Asia-Pacific region are mixed today, as investors take events in the Middle East in their stride

Japan’s Nikkei 225 index has dipped by 0.17%, while Australia’s S&P/ASX 200 index has lost 0.35%.

The mood in China is brighter, though, where the CSI 300 index is up 0.44%. Hong Kong’s Hang Seng has gained 0.55%.

Ipek Ozkardeskaya, senior analyst at Swissquote Bank, says there is a “fascinating calm” in the markets after the US attack on Iran, adding:

Global equities will likely remain under pressure at the open – but judging by how oil prices reacted to the weekend news, the selloff could remain relatively soft compared with the heaviness of the headlines.

S&P futures [the US stock market] are down about 0.30% – they’re behaving like a normal Monday. And that, I find extremely interesting. It really feels like markets have become increasingly unreactive to the news. The lack of reaction is fascinating.

The US dollar has risen, a little, against a basket of currencies today as investors seek out safe haven assets.

The dollar index has gained 0.3% this morning, while the pound has slipped by 0.1% to $1.3433.

Carol Kong, currency strategist at Commonwealth Bank of Australia, said the markets are in wait-and-see mode on how Iran responds, with more worries about the positive inflationary impact of the conflict than the negative economic impact.

Kong explains:

“The currency markets will be at the mercy of comments and actions from the Iranian, Israeli and U.S. governments.

The risks are clearly skewed to further upside in the safe haven currencies if the parties escalate the conflict.”

IMF’s Georgieva warns of growth risks from US strikes on Iran

The head of the International Monetary Fund has warned that last weekend’s US strikes on Iran could hurt global growth, if the consequence ripple beyond the energy markets.

Kristalina Georgieva told Bloomberg TV this morning that the Middle East crisis added to global uncertainty, explaining:

“We are looking at this as another source of uncertainty in what has been a highly uncertain environment.”

Georgieva said the IMF was watching energy prices closely, warning that a rise in oil prices could have knock-on economic impact. She says:

“There could be secondary and tertiary impacts. Let’s say there is more turbulence that goes into hitting growth prospects in large economies — then you have a trigger impact of downward revisions in prospects for global growth.”

Georgieva is also hoping that energy supply routes will not be disrupted, saying:

“Let’s see how events will develop.

I pray no.”

Introduction: Oil dips back from five-month high amid Iran crisis

Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.

The oil price has hit its highest level since January, after the US bombed Iran’s nuclear facilities over the weekend.

Traders are in a largely risk-off mood, as they weigh up the chances of further escalation in the Middle East, and ponder possible Iranian retaliations. But there’s not a full-blown panic in the markets.

There was an early leap in the oil price when the new trading week began; crude prices surged over 4%, pushing a barrel of Brent crude to a five-month high of $81.40 per barrel.

But… it’s slipped back even before traders in the City of London reached their desks, and is now up 1.7% at $78.32 per barrel.

Yesterday, Iran’s parliament voted to shut down the Strait of Hormuz, though which a fifth of the world’s oil is transported. If it happened, that could create a supply shock that drives up the price of energy, fuelling inflation and hurting growth.

In response, Marco Rubio, the US secretary of state, warned it would be “economic suicide” for Iran to close the Strait, and urged China to sway Tehran on this point.

Rubio told Fox News:

“I encourage the Chinese government in Beijing to call them about that, because they heavily depend on the Straits of Hormuz for their oil.”

Holger Schmieding, chief economist at Berenberg Bank, says the Strait of Hormuz is “the key economic risk to watch”. But, he also argues that a protracted disruption to energy flows in the Gulf region “seems unlikely”, as trying to throttle energy exports would be a high-risk strategy for Tehran.

Schmieding told clients this morning:

For more than two decades, the Iranian regime has sought to destabilise various parts of the Middle East. On its own, a big setback to Iran‘s apparent attempt to acquire nuclear weapons should count as a positive.

In the short run, the US “one off“ strike against three Iranian nuclear facilities raises the geopolitical risks in the region to a new level. Markets will probably shift into “risk off” mode as they await the Iranian response. In the long run, however, a severely weakened Iranian regime could turn into a significant positive for the region.

The agenda

• Today: UK government to publish its industrial strategy

• 9am BST: Eurozone flash PMI manufacturing and services survey for June

• 9.30am BST: UK flash PMI manufacturing survey and services for June

• 2pm BST: Christine Lagarde testifies to the Committee on Economic and Monetary Affairs of the European Parliament in Brussels

• 2.45pm BST: US flash PMI manufacturing survey and services for June