High oil prices push up inflation fears, gas workers strike and Wilko job cuts

by | Sep 6, 2023

  • Crude prices remain elevated, raising inflationary concerns on markets.
  • Dollar stays stronger against the pound, which is also lower on expectations of a slowing UK economy.
  • Negotiations with Australian LNG workers in focus as strikes risk pushing up gas prices.
  • Speculation of fresh stimulus for China’s property sector sends real estate shares higher, with Evergrande soaring by more than 50%.
  • Tough day for Wilko staff, as they brace to find out which jobs will go. 

Susannah Streeter, head of money and markets, Hargreaves Lansdown:

‘’The downbeat mood on the markets is continuing, with little to lift sentiment in sight, as oil prices stay elevated and inflationary fears are pushed back up. Brent Crude is still hovering around $90 a barrel, after jumping sharply on news that Saudia Arabia and Russia appear intent on extending voluntary cuts through to the end of the year. Riyadh’s decided to take 1 million barrels a day out of the market until the end of December, and Moscow following suit with a similar, but smaller, reduction has led to concerns about supply on world markets.

While higher prices are certainly good news for Saudi Arabia’s coffers, it’s set to cause fresh pain at the fuel pumps as elevated crude costs filter through. It’ll also cause another headache for central bankers. Energy prices are big inflationary drivers, and just at the time when the price spiral appears to be moving more obediently downwards, high crude prices could cause upset. The expectation that the Fed might have to push up interest rates again, after a pause this month, has sent US Treasury yields higher, and the uneasy sentiment is expected to hang around, with the FTSE 100 set to open lower and US futures pretty flat. The dollar has strengthened against the pound, partly on the back of Fed interest rate speculation, with sterling now hovering around $1.257, the lowest point since around mid-June. But other UK data, particularly the PMI Services snapshot for August has painted a picture of a slowing British economy and is helping to reinforce bets that the Bank of England won’t go as high in the UK as the market had been predicting just weeks ago.

Talks between worker representatives and Chevron management at two large LNG sites in Australia are also being closely watched, as a breakdown in negotiations could spark strikes, which could potentially push up gas bills this Autumn. Already wholesale prices had been inching up, given that these plants at Gorgon and Wheatstone account for more than 5% of global capacity. It’s feared that if no resolution is found, and a period of prolonged industrial action is sparked, it’ll disrupt chilled gas exports from Australia, provoke bidding wars for other LNG supplies, and cause yet more inflationary pressure.

Forecasts of lower demand from China, due to its faltering economy, has kept a lid on energy prices to some extent, but there has been some respite for the country’s beleaguered property sector. Country Garden was at risk of defaulting on its debt, but it has made interest payments hours ahead of a deadline. Expectations are rising that there will be moves to pour more stimulus into the sector to try to bring an end to the cycle of real estate firms risking further defaults. Relief and speculation appears to be behind the sharp moves higher in the share price of not just Country Garden but other big property firms, most notably Evergrande which surged by more than 50%.

It’s a very sad day for Wilko employees, who are bracing for news of redundancy. Staff at the 52 stores which are set to start closing this week will be informed later this morning. The future of many thousands more positions still hangs in the balance. It’s unclear how many employees may be taken on by rival B&M, which has snapped up 51 shops, while a white knight rescue of the name and a big chunk of the rest of the estate, by HMV owner Doug Putman, is clouded in uncertainty. Wilko is right now still on the chopping block, small parts of the portfolio might yet be carted away by other rival value retailers, but staff and loyal customers are still hoping the brand may survive in some form on the high street.’’

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