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The Guardian - UK
The Guardian - UK
Business
Graeme Wearden

Oil price falls despite Middle East tensions; Tesla ‘to cut 10% of staff’; Goldman Sachs profits jump – as it happened

United States Oil Middle East Israel Iran
An electronic board showing the Nikkei index of the Tokyo Stock Exchange today
An electronic board showing the Nikkei index of the Tokyo Stock Exchange today Photograph: Kazuhiro Nogi/AFP/Getty Images

Closing post

Time to wrap up… here are today’s main stories so far:

Major airlines have been forced to cancel and re-direct flights to Israel in the wake of Iran’s missile and drone attack on Saturday.

EasyJet has temporarily stopped flights to and from Tel Aviv until this Sunday, while Wizz Air has said it will resume on Tuesday after cancelling services from Saturday until Monday.

More here.

Back in the markets, the oil price is sliding further into the red.

Brent crude is now down 1.6% at $88.96 per barrel, as traders cling to hopes that tensions in the Middle East will not escalate further following Iran’s retaliatory strike on Israel last weekend.

Some senior names at Tesla have also left the company.

That include Andrew Baglino, Tesla’s senior vice president for powertrain and energy engineering. Baglino has posted that he made the difficult decision to leave yesterday – which suggests he’s chosen to quit, rather than seeing his role axed.

Baglino writes:

When I joined as a junior firmware / electrical engineer back in 2006, a future Tesla that produced the world’s top selling vehicle was well beyond my expected set of outcomes. A reminder to all of us to set higher expectations, I guess :)

Bloomberg’s Ed Ludlow reports that Rohan Patel, Tesla’s senior global director of public policy and business development, has also left.

Tesla’s plans to cut 10% of its workforce haven’t given its share price a lift.

Shares in Tesla have dropped by 3.5% in early trading to $165.05, down from $171.05 on Friday night.

That knocks $19bn off its market capitalisation so far today, down from $544bn to $525bn.

So far this year, Tesla has now lost a third of its value.

Wall Street opens in the green

The US stock market has begun the new week with gains, as traders in New York shrug off Iran’s attack on Israel last weekend.

The Dow Jones industrial average has risen by 353 points, or 0.9%, to 38,336 points, recovering a lot of Friday’s fall.

The broader S&P 500 has gained 0.7%, and the tech-focused Nasdaq is up 0.6%.

Analysts at BNY Mellon say the markets are in a “risk on” mood, as the “worst-case fears about Iran and Israel have not materialized”, meaning investors are now unwinding hedges they took out last week.

As explained this morning, there’s relief in the markets that most of the missiles and drones fired by Iran towards Israel were shot down.

Hopes that tensions won’t escalate are rising, after the White House has warned Israel that the US will not participate in any retaliatory strikes on Iran.

Back in the City, the FTSE 100 share index has shrugged off its earlier losses.

The blue-chip share index is now up 5 points, or 0.07%, which pushes it back over the 8,000-point mark.

That means its less than 50 points away from the record high of 8,047 points, which could come back into play if market nervousness recedes….

The US retail sales report will “further support” the Federal Reserve’s stance that there is no rush to start lowering interest rates, reports Andrew Hunter, deputy chief US economist at Capital Economics.

Hunter told clients:

Although growth over the first quarter as a whole was hit by the weather-related weakness in January, the March gain leaves retail spending growth looking in better shape than the data previously implied.

And although overall real consumption growth still looks to have slowed from the 3.3% annualised gain seen in the fourth quarter of last year, it was still apparently more than 2.5% annualised. Alongside the recent resurgence in employment growth, the continued resilience of consumption is another reason to suspect the Fed will wait longer before starting to cut interest rates, which now we think won’t happen until September.

Updated

Today’s strong retail sales suggest the US economy is holding up well, which may deter the Federal Reserve from cutting interest rates soon.

The US dollar has strengthened since the better-than-expected US retail sales were announced, hitting its highest level since last November.

This has pushed the Japanese yen down to a new 34-year low, at 154.28 yen to the dollar, which will intensify the pressure on Tokyo to intervene and support its currency.

US retail sales beat forecasts

Just in: US retail sales were stronger than expected last month, as the American economy continues to show resilience.

Retail sales rose by 0.7% month-on-month in March, and were 4% higher than in March 2023, the US Census bureau reports.

Spending at nonstore retailers (ie online shops) was up 11.3% year-on-year, while takings at food services and drinking places were 6.5% higher than in March 2023.

General merchandise stores grew their sales by 5.7%, while miscellaneous store sales jumped 6.1%, suggesting that consumer spending remained robust.

But, sales at furniture and home furnishings shops fell 6.1% year-on-year; perhaps due to the drop in home sales towards the end of last year.

Goldman Sachs beats forecasts with 28% jump in profits

Goldman Sachs has beaten expectations by posting a 28% jump in profits for the first quarter of this year.

Goldman has reported it made net earnings of $4.13bn for the January-March quarter, up from $3.23.bn a year ago.

That lifted its earnings per share to $11.58, up almost a third from $8.79 in the first quarter of last year.

Goldman reported “strong performances” in earnings from investment banking fees, from its Fixed Income, Currency and Commodities arm, and from its Equities division.

Goldman CEO David Solomon says:

“Our first quarter results reflect the strength of our world-class and interconnected franchises and the earnings power of Goldman Sachs. We continue to execute on our strategy, focusing on our core strengths to serve our clients and deliver for our shareholders.”

Goldman’s investment bankers had a busier year, with fees up 32% to $2.08bn. This was driven by higher revenues from debt underwriting, to fund leveraged finance activity (using debt to buy assets).

Updated

Energy giant BP is also cutting jobs at its electric vehicle charging arm.

Reuters reports that BP has cut over a tenth of positions at its EV charging business, BP Pulse, and also withdrawn from several markets.

It is now focusing on the US, the UK, Germany and China – four countries where it sees the fastest EV growth – and pulled out of several other markets. This means around 100 jobs were axed; most staff affected have been redeployed, with just a handful leaving BP.

Shares in Tesla are down 0.7% in pre-market trading, as traders digest reports that it will cut 10% of its staff in a cost-cutting drive.

They fell 2% on Friday, and are down around 31% so far this year.

Tesla 'laying off 10% of workforce'

Electric carmaker Tesla is reportedly planning to lay off more than 10% of its workforce, as it battles rising competition and softer demand.

Technology publication Electrek reported this morning that Tesla staff had been told, in a company-wide email, that one in ten employees are being cut.

According to Electrek, Musk broke the news to staff, saying:

Over the years, we have grown rapidly with multiple factories scaling around the globe. With this rapid growth there has been duplication of roles and job functions in certain areas. As we prepare the company for our next phase of growth, it is extremely important to look at every aspect of the company for cost reductions and increasing productivity.

As part of this effort, we have done a thorough review of the organization and made the difficult decision to reduce our headcount by more than 10% globally. There is nothing I hate more, but it must be done. This will enable us to be lean, innovative and hungry for the next growth phase cycle.

Musk then thanked those who are leaving Tesla for their hard work, adding “It is very difficult to say goodbye.”

At the end of last year, Tesla had over 140,000 employees, which suggests at least 14,000 jobs are to go.

Earlier this month Tesla reported its first quarterly fall in deliveries in nearly four years, partly due to disruption at its Fremont factory in California as it tries to increase production of the updated Model 3.

Tesla is due to report its next financial results after Wall Street closes on Tuesday, April 23, covering the first three months of this year.

Three months ago, it missed forecasts for revenues and earnings for the final quarter of 2023.

Updated

India’s stock market has hit its lowest level since the end of last month, as geopolitical tensions weighed on shares.

The Sensex index lost 1.1% in today’s nervous trading, amid a rise in volatility.

Newsflash: The devastating impact of the Covid-19 pandemic on the world’s poorest countries has brought poverty reduction to a halt and led to a widening income gap with nations in the rich west, the World Bank has warned.

In a report released to coincide with its half-yearly meeting, the Washington-based organisation said half of the world’s 75 poorest nations had seen income per head rise more slowly than in developed countries over the past five years.

Urging governments and the private sector to do more to help tackle what it called a “great reversal”, the Bank said that since 2019 there had been a surge in food insecurity and debt distress.

The Bank’s data showed that one in three countries eligible for grants and concessional loans under its International Development Association (IDA) arm was poorer, on average, than it was on the eve of the Covid-19 pandemic. Not since the last five years of the 20th century had more than half of the poorest countries experienced income per head grow more slowly than in developed countries.

Here’s the full story:

Although oil is down this morning, it’s only dipped to its lowest level since last Wednesday.

That suggests that some, but not all, of the risk premium in the oil price has dissipated, with Brent crude down $1 per barrel at $89.50.

Raffi Boyadjian, lead investment analyst at XM, says:

It seems that the immediate market reaction to Iran’s onslaught of missiles is relief, as the attacks were well telegraphed in advance, giving the Israelis and Americans plenty of time to prepare for defensive action. Even oil futures barely flinched, spiking modestly higher at Monday’s open before pulling lower.

Updated

Elsewhere this morning, industrial production across the eurozone has crept up, but was sharply lower than a year ago.

Industrial production increased by 0.8% in the euro area in February data from Eurostat shows, compared with January.

But on an annual basis, industrial output was 6.4% lower than in February 2023 across the euro area.

This annual decline was partly due to a 3.6% drop in energy output, but was also driven by a near 9% decline in production of capital goods (heavy-duty machinery).

Oil is continuing to drop this morning, with Brent crude down 1% today at $89.52 per barrel.

Having risen last week in anticipation that Iran would respond to the bombing of its diplomatic complex in Syria two weeks ago, oil is now retreating on relief that the damage was not worse.

AJ Bell investment director Russ Mould says:

The situation remains fraught and, beyond the geopolitical and humanitarian implications, a more widespread conflict in the Middle East could see energy prices surge and unpick central banks’ careful efforts to bring down inflation.

Updated

Goldman: oil prices already reflect a $5-10/bbl risk premium

Goldman Sachs analysts estimate that the oil price currently includes a risk premium of between $5 and $10 per barrel, to reflect risks to supplies from geopolitical shocks.

In a research note this morning, Goldman explain that the Brent crude price (at around $90/barrel this morning) is around $10/barrel higher than predicted by a model assuming no new disruptions to oil supply.

They say:

While the geopolitical risk premium—the compensation investors demand for the risk that geopolitical shocks reduce oil supply—is difficult to estimate, our rough estimate informed by our pricing framework and the cost of hedging would be around $5-10/bbl.

The cost of insuring against oil price spikes has picked up following attacks on Russian refineries and rising Iran-Israel tensions but has remained less elevated as of Friday than in October 2023 and in 2022 because Middle East crude production remains unaffected by the war.

Goldman add that they are focused on several potential risks:

  • OPEC+ may extend the existing production cuts further in a context of increased tensions between the West and several key OPEC+ countries.

  • The Middle East or Russia-Ukraine conflicts may damage upstream, midstream, or downstream oil infrastructure (as has happened to Russian refineries).

  • Iranian oil supply may decline on disruptions or under a potentially more hawkish US Administration.

  • While still highly unlikely, we estimate that an interruption of oil flows through the Strait of Hormuz, through which currently 17% of global oil production flows, would lead oil prices to rise 20% in the first month and eventually double if the interruption persisted for several months. Iran’s seizure of a cargo ship near the Strait of Hormuz may keep some focus on the risks to that shipping lane.

Updated

UK stocks lag behind Europe

After 90 minutes trading, London’s stock market is lagging behind the rest of Europe.

The FTSE 100 is currently down 42 points, or 0.5%, at 7953 points, dragged down by losses among oil companies BP and Shell, and precious metals producer Fresnillo.

Susannah Streeter, head of money and markets at Hargreaves Lansdown, says the week has started on a “fraught note”, with unease still clouding sentiment.

Investors are on alert for retaliatory action following Iran’s attack on Israel. Fears are brewing that a dangerous new episode of escalating conflict is about to roll. All eyes are on diplomatic efforts being made to diffuse the situation which have helped bring down a spike in oil prices.

The FTSE 100 has been on the back foot in early trade, retreating away from record levels which the index flirted with on Friday. Although defence company BAE Systems has gained fresh ground amid expectations of higher military spending, energy stocks are on the back foot, as oil prices have retreated a little.

Across Europe, the picture is brighter, with Germany’s DAX up 0.8% and Italy’s FTSE MIB gaining 1%.

Budget airline easyJet is now the top riser on London’s FTSE 100, up 1.7%.

British Airways parent company, IAG, is close behind having gained 1.4%.

Europe’s aviation regulator has reaffirmed its advice to airlines to use caution in Israeli and Iranian airspace.

The European Union Aviation Safety Agency (EASA) said it and the European Commission would “continue to closely monitor the situation to assess any potential safety risks for EU aircraft operators and be ready to act as appropriate”.

Current guidance is that airlines should exercise caution in both country’s airspace.

EASA also says no civil overflights were placed at risk last weekend, during the tensions surrounding Iranian drone and missile strikes on Israel, Reuters reports.

Dozens of flights were cancelled last weekend as airlines avoided large swaths of airspace in the Middle East, with Israel, Iran, Jordan, Iraq and Lebanon all temporarily closing their airspace.

These posts from yesterday show the impact:

After heavy losses at the end of last week, the US stock market is set to open higher today.

The Dow Jones industrial average is up 0.4% in the futures market, while the broader S&P 500 index is on track to rise 0.5%.

Both indices fell over 1% on Friday, as markets positioned for bad news over the weekend.

Kathleen Brooks, research director at XTB, says the initial reaction this morning seems to be one of relief – although that could quickly change if Israel were to retaliate against Iran,

Brooks explains:

When Iran launched drone and military attacks on Israel on Saturday night, it was the culmination of a build up of tensions over a number of weeks. Iran had threatened to retaliate in recent days, Israel on Friday said that it would strike back if it did.

Stocks tanked, the S&P 500 fell 1.46% on Friday, the Brent crude oil price rose by 3.4% in April, while gold climbed to a record high above $2,400 per ounce on Friday, before falling back sharply. The market was deeply concerned about the scale of this attack and whether it would lead to a wider escalation of war in the Middle East.

At the start of a new week, that uncertainty has disappeared, there was minimal damage from the strikes and there were no fatalities. This is why US stock market futures are predicting a higher open for US stocks and why the oil price did not rise on Monday.

Updated

Tel Aviv stock market rallying

Israel’s stock market has opened sharply higher.

The Tel Aviv 35 index has jumped by 1.4% in early trading today, led by gains among financial, basic materials, real estate and industrial stocks.

Shekel gains 1.2% vs US dollar

Israel’s currency, the shekel, is strengthening in early trading.

The shekel has gained over 1.2% against the US dollar to hit 3.7128, its strongest level since last Wednesday.

Reuters attributes this to relief that "Israel has not yet struck back at Iran, following Saturday’s attack.

FTSE 100 opens in the red

The London stock market is open… and stocks are a little lower at the start of trading.

But it’s certainly not a big selloff. The FTSE 100 index has only dropped by 20 points, or 0.25%, to 7976 points.

Aerospace manufacturer Melrose were the top riser at the open, up amost 1.5%, with weapons producer BAE Systems up 1.4% – a sign that traders expect defence spending to remain benefit from current tensions.

Mining stocks and banks are also higher in early trading.

But oil companies are on the slide, with BP (-1.6%) and Shell (-1.3%) among the big fallers, indicating anxiety over crude supply disruption is fading.

European stock markets have risen at the open.

Brent crude oil has dropped by 0.5% this morning, to $90 per barrel, a subdued reaction which suggests markets believe the fallout from Iran’s strike on Israel will be contained.

Oil has risen this year, up from $75/barrel at the start of January, indicating that a geopolitical price premium had already been built into the cost of energy.

Bartosz Sawicki, market analyst at Conotoxia fintech, predicts that the geopolitical risk premium is set to remain elevated, adding:

Israel’s government’s potential response is still extremely uncertain. The stakes are high. Significant retaliation could lead to a wider conflict, consequently triggering a rally in oil prices, robust demand for the US dollar, and renewed buying of gold.

Iran produces almost 3.5m barrels of oil per day, or 3.3% of world production, so any hypothetical loss of those supplies (perhaps though sanctions) could leave the world undersupplied.

Updated

Across the markets, there were limited losses in Australia overnight, where the ASX 200 share index has fallen 0.5%.

South Korea’s KOSPI 200 has also dropped 0.5%, while India’s SENSEX has lost 0.75% – relatively mild falls.

Kyle Rodda, senior financial market analyst at Capital.com, explains:

Asian cash equities have dropped to reflect the heightened risk of war in the Middle East. However, the move wasn’t as deep as what was reflected in futures prices from Friday’s close.

A lift in US futures today indicated relief that the attack wasn’t worse and is yet to provoke retaliation and significant escalation. The markets await Israel’s response to assess the risk of a broader conflagration and deepening conflict.

Introduction: Markets nervy amid fears of Middle East escalation

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

The financial markets are in a nervous mood this morning, as investors fear escalating tensions in the Middle East after Iran’s military strike on Israel last weekend.

Many Asia-Pacific stock markets have fallen into the red, with Japan’s Nikkei losing almost 1% today, amid fears that open warfare could erupt in the region.

But there’s also relief that Iran’s first ever direct attack on the Israeli state did not cause more damage, with almost all the drones and missiles intercepted, leading to hopes that further retaliation and escalation could yet be avoided.

The oil price, a bellwether for Middle East tensions, has dropped slightly this morning. Brent crude is trading around $90 per barrel – away from last Friday’s six-month high of $92/barrel.

Risk appetite is better this Monday morning than it was last Friday when the world was bracing for Iran’s retaliation on Israel, reports Ipek Ozkardeskaya, senior analyst at Swissquote Bank.

Iran fired more than 300 drones and missiles on Israel on Saturday night, but only a small number reached Israel, limiting damages. There were no fatalities, just an army base was slightly damaged.

Good news is Tehran called the operation a success and declared that it won’t take further actions unless Israel responds.

Israel signalled last night that it would not immediately act alone, but also says its forces remain on high alert:

Reports that President Joe Biden has told Israel’s prime minister Benjamin Netanyahu that the US wouldn’t support any Israeli counterattack against Iran suggest there is more caution about an escalation.

This uncertain backdrop means that markets haven’t sold off further this morning relative to Friday, explains Deutsche Bank strategist Jim Reid, who told clients this morning:

Since last Friday, geopolitics has returned as the biggest concern for markets, as investors react to Iran’s attack on Israel over the weekend.

But since markets have reopened after the weekend, the reaction among key assets has been subdued, with investors hopeful that any escalation will prove contained.

The agenda

  • 10am BST: Eurozone industrial production for February

  • 12.15pm BST: BoE deputy governor Sarah Breeden gives keynote speech at the Innovate Finance Global Summit 2024 “The outlook for payments innovation”.

  • 1.30pm BST: US retail sale for March

  • 3pm BST: NAHB’s US housing Market Index

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