Oil prices climbed and chip stocks fell further as trading began in Europe on a day dominated by renewed tension in the Middle East and a continued global sell-off in semiconductor shares. Brent crude rose after the US military said it had intercepted an Iranian missile barrage and struck sites in Iraq used by Tehran-backed militias, while European markets opened higher despite weakness in chip names.
Brent crude, the international benchmark, was up 3.8% to $87.26 a barrel this morning after Washington described the assault as “an attempted surprise attack” by Tehran. The move came after Iran launched multiple ballistic missiles at US forces in the Middle East, ending a brief pause in fighting. Iran’s target was a US base in Jordan, according to Axios.
How are European markets trading?
European stock markets opened on a firmer note. The Stoxx Europe 600, which tracks the biggest companies on the continent, was up 0.3% in early trading, while the UK’s blue-chip FTSE 100 rose 0.6%, led by a 1.9% gain in its basic materials sector after some. The German Dax and the French Cac 40 were both up by about 0.3%.
Europe is not entirely insulated from the chip stock sell-off that has already hit Asia and the US. Among the day’s weakest performers were chip companies Infineon Technologies and ASML, both down by about 1%.
What is driving gains in mining shares?
Mining shares are getting support from stronger commodity prices and company updates. Rio Tinto reported a 43% jump in second-quarter profit to $6.9bn (£5.2bn), helped by rising commodity prices and a slimmer business after deep cost-cutting and divestments. Its shares were up 2% this morning.
Glencore also published a production update, telling investors that copper output is up 15% on higher grades at key operations. The group said its marketing unit is expected to report adjusted earnings of around $3.3 billion at its half-year point, and its shares were up 4%.
How did Reckitt Benckiser perform?
Reckitt Benckiser said stronger demand for its cleaning and hygiene products helped it beat expectations in the second quarter. Like-for-like sales at the consumer goods group’s core brands, including Dettol disinfectants and Durex condoms, rose by 4.2%, compared with expectations of 3.7%.
However, the FTSE 100 company’s operating profit fell 14.3% to £1.47bn in the six months ended in June. Reckitt, which warned in April about a possible hit of up to £150m from rising oil prices, also said it now expects a lower impact as prices have eased back, relatively speaking.
While still volatile, oil prices have moderated since then and we currently expect a reduced input cost impact in 2026. We continue to view this as a manageable headwind and are taking actions to mitigate the impact
Why are analysts warning about energy supply?
Analysts at ING said Iran’s attempted attack on US forces has “thrown cold water on the idea of a swift de-escalation in the Persian Gulf”. Warren Patterson and Ewa Manthey warned in a note this morning that the risk of prolonged supply disruptions is growing as Saudi oil infrastructure becomes increasingly targeted.
With Saudi oil infrastructure increasingly targeted, the risk of more prolonged supply disruptions grows. There are reports that the 400k b/d Jazan refinery in Saudi Arabia has shut following Houthi attacks over the weekend. If confirmed, this will only add to tightness concerns in the refined products market already dealing with disruptions from the Persian Gulf, as well as Russia.
They said tanker traffic through the Strait of Hormuz remains essentially halted. While Iran and Oman have held talks on managing vessel transits through the strait, Iran has rejected Oman’s proposal for a 50-50 shipping plan. That proposal would have created an inbound route on one country’s side and the outbound route on the other’s. Instead, Iran wants oversight of both inbound and outbound vessels.
…Meanwhile, tanker traffic through the strait of Hormuz remains essentially halted. While Iran and Oman have held talks on managing vessel transits through the strait, Iran has rejected Oman’s proposal for a 50-50 shipping plan. It would facilitate an inbound route on one country’s side and the outbound route on the other’s. Instead, Iran wants oversight of both inbound and outbound vessels.
The analysts added that the European gas market looks “increasingly vulnerable as we head into winter”.
QatarEnergy has reportedly extended its force majeure for buyers in Asia and Europe to as far as the end of September. There have also been reports of QatarEnergy looking to subcharter an LNG carrier until the end of October, given the ongoing disruptions to Qatari LNG exports.
EU LNG imports are on track to fall a little more than 25% YoY in July, which is making the job of refilling storage more difficult. EU gas storage is 56% full at the moment, below the 10-year seasonal average of 72%. Heatwaves across Europe will only add to the difficulty in filling up storage ahead of the winter. Tighter-than-usual storage at the start of the heating season suggests that gas prices will remain elevated through the winter, with the risk of spikes higher.
What is happening with chip stocks in Asia and the US?
The rout in chip stocks continued overnight in Asia after another difficult session in the US. The South Korean market, which relies heavily on SK Hynix and Samsung Electronics, lost a further 8.3% today. SK Hynix shares slumped 9% even after the company reported a six-fold surge in quarterly profit, while Samsung shares dropped 6% ahead of its earnings report due tomorrow.
In the US, chip stocks had already dragged the Nasdaq down 1% yesterday. Sandisk fell 14%, while Western Digital and Micron fell 6.9% and 8.9% respectively. Advanced Micro Devices fell 8.1%.
Higher oil prices and the continuing sell-off in chip stocks have created an uncertain backdrop ahead of the Federal Reserve’s interest-rate decision later today, Jim Reid of Deutsche Bank said.
All that leaves a volatile backdrop ahead of today’s FOMC decision, which is the most finely poised in years in terms of market pricing. With a 32% chance of a rate hike today priced as of last night, this is the most uncertain that the market has been on whether the Fed will change rates going into a meeting since December 2018, when the eventual 25bps rate hike was about 65% priced the day before.
We’ve seen considerable volatility in the July hike pricing over the past couple of weeks, falling as low as 10% in mid-July following the soft June US CPI print but rising to as high as 38% on Monday. So with chair Warsh shying away from policy guidance, we’ve seen one regime shift compared to the past few years when markets received a steer from officials’ commentary or via the financial press.
In terms of today’s decision, our US economists expect the Fed to leave rates unchanged but see the risks of a hike as significant with the renewed escalation in the Middle East complicating the inflation outlook. If the Fed holds rates steady, they expect at least a couple of dissents in favour of a hike.
What is on today’s agenda?
The day’s economic and corporate calendar includes a string of half-year and quarterly results, followed by the US central bank decision later in the evening.
7am BST: Aberdeen half-year (HY) results, Greggs HY, Airbus HY, Aston Martin Lagonda HY, Campari HY, Danone HY, Deutsche Bank Q2, Hermès HY, L’Oréal HY, Porsche HY, Procter & Gamble Q4/FY, Reckitt Benckiser HY, Rio Tinto HY, Standard Chartered Q2/HY, UBS Q2
9.30am BST: ONS workless households data
7pm BST: US Federal Reserve decision on interest rates
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
Why did oil jump this morning?
Oil is rising after the US military said it knocked down an Iranian missile barrage and worked with forces to strike sites in Iraq that Tehran-backed militias have used to launch attacks in recent days. The escalation followed what Washington described as “an attempted surprise attack” by Iran, with multiple ballistic missiles launched at US forces in the Middle East.
That development ended a brief pause in fighting and pushed Brent crude sharply higher. It also intensified concerns about supply chains and regional stability at a time when markets were already unsettled by weak technology shares.
How are investors weighing the Fed decision?
Investors are facing a volatile setup ahead of the Federal Reserve’s interest-rate decision later today. Market pricing points to uncertainty over whether policymakers will hold rates steady or deliver a hike, with the renewed escalation in the Middle East adding to inflation concerns.
According to Deutsche Bank’s Jim Reid, the market has not faced this level of uncertainty heading into a Fed meeting since December 2018. His note also pointed to sharp swings in expectations over the past few weeks, as traders reacted to inflation data and changes in policy guidance.
Why does the chip sell-off matter?
The technology downturn matters because it is weighing on major indices and chip-heavy markets across regions. South Korea’s 8.3% fall highlighted how exposed some markets are to semiconductor weakness, while US declines helped drag the Nasdaq lower and added to volatility in broader investor sentiment.
SK Hynix’s six-fold profit surge did not stop its shares from falling 9%, underscoring how focused investors remain on valuation pressure and the wider reassessment of AI-linked stocks. Samsung’s 6% decline ahead of earnings added to the negative tone.
What are the risks for energy and gas markets?
ING said the European gas market is looking increasingly vulnerable heading into winter. The firm pointed to reports that QatarEnergy has extended force majeure for buyers in Asia and Europe to the end of September, as well as reports that it is looking to subcharter an LNG carrier until the end of October because of ongoing disruption to Qatari LNG exports.
The note added that EU LNG imports are on track to fall a little more than 25% year on year in July. That is making it harder to refill storage, with EU gas storage currently 56% full, below the 10-year seasonal average of 72%. Heatwaves across Europe are also making the job of filling storage ahead of winter more difficult.
The analysts said tighter-than-usual storage at the start of the heating season suggests gas prices will stay elevated through the winter, with the risk of further spikes.
What else should investors watch today?
Investors will be watching the corporate results due at 7am BST, the ONS workless households data at 9.30am BST and the Federal Reserve decision at 7pm BST. The combination of geopolitics, commodity moves, semiconductor weakness and central bank policy is likely to keep markets active throughout the day.
European stocks began the session higher, but the early gains sit alongside weakness in chip shares and concern about how the Middle East conflict could affect oil, refined products, LNG and winter gas supplies.
The market backdrop remains unsettled as companies including Reckitt Benckiser, Rio Tinto and Glencore update investors, while traders wait for clarity from the Fed later today.
Key Facts
- Brent crude rose 3.8% to $87.26 a barrel after US forces intercepted an Iranian missile barrage.
- The Stoxx Europe 600 was up 0.3%, while the FTSE 100 rose 0.6% in early trade.
- Rio Tinto reported a 43% rise in second-quarter profit to $6.9bn (£5.2bn).
- Reckitt Benckiser said like-for-like sales at core brands rose 4.2% in the second quarter.
- The US Federal Reserve is due to announce its interest-rate decision at 7pm BST.
