Tariff war and domestic politics weigh on the FTSE

Oil higher as Saudi steps in to support prices

Saudi Arabia stepped into the breach to support higher oil prices with the country’s officials claiming that they were comfortable with oil being traded above $80. 

Traders are still trying to assess how much the Iran sanctions, due to come into effect in November, will disrupt the flow of oil into the West, but if Saudi Arabia is comfortable with higher prices it means that the country is unlikely to increase production immediately in order to balance out declining supplies. 

The US has been lobbying hard with Saudi Arabia and Russia to make sure that the world’s two largest oil producers continue pumping enough oil for prices to not rise too much. 

Before the London close Brent crude traded up 1% and WTI up 1.15%.

First concession in the Sino-US trade dispute

US stock markets seem unperturbed by the rambling trade dispute between the US and China and indices are up across the board. The Dow Jones Industrial Average traded up 0.4% while the Nasdaq rose 0.92% although the tech-heavy index has the potential to be the hardest hit if China and the US escalate their trade dispute onto the next level. 

President Trump has already threatened to introduce tariffs on all the remaining imports from China which are not yet included if China responds to this week’s tariffs, which it has already done. If the trade war goes all out it would start affecting the big US tech stocks. Apple is particularly vulnerable as half of its iPhones are produced at a plant in central China. 

The two sides each made their first concession in the current trade conflict, the US by lowering its initially planned 25% tariff to 10% and China responding in kind, notably on US imports of liquid natural gas. Both sets of tariffs will start applying from 24 September. 

UK economic indicators on Wednesday 

The pound is gently slipping against the dollar and the euro ahead of several key UK economic indicators due to be released on Wednesday. 

The UK house price index and the consumer and producer price indices will be published at 9.30 tomorrow and will provide an indication over whether the Bank of England needs to start worrying more about inflation or about the effect of Brexit. 

The latest batch of house price data was showing a decline in volumes of sales and in London house prices, although the rest of the UK was mainly holding up. At present domestic inflation is at around 2.5%, slightly above the government’s long term target of 2%.