CONCERNS ABOUT escalating tensions in the Middle East sent oil prices sharply higher yesterday on fears of supply disruption and offered support to gold, US Treasuries and the Swiss franc as investors sought havens.
Benchmark US crude climbed as much as 12 per cent to $42.20 a barrel and gold touched its highest level for more than two months as Israeli aircraft attacked targets in the Gaza Strip for a third day.
But neither gold nor oil could maintain their early momentum.
“Although ongoing tensions could keep things fairly well bid for a while, we suspect that [oil] prices will eventually buckle under the relentless barrage of poor macro-economic headlines,” said Edward Meir, analyst at MF Global.
Indeed, the day’s thin calendar of economic releases offered little to reassure investors.
Further evidence of the grim outlook for the British economy came from data showing that UK housing equity withdrawal in the third quarter was the lowest on record.
“This reinforces belief that we are in for an extended period of very serious consumer retrenchment, which will be a major factor contributing to GDP contracting sharply in 2009,” said Howard Archer, chief UK and European economist at IHS Global Insight.
The figures came hard on the heels of more bad news on the UK housing and employment markets.
In Italy, business confidence fell to a record low in December, according to research institute ISAE.
In the currency markets, the increasingly bleak outlook for the UK economy helped drive sterling further towards parity with the euro.
The single currency touched a record high of £0.9779 and the pound also hit its lowest level on record on a trade-weighted basis.
“The market is so heavily negative about sterling at the moment and every bit of news that indicates a worsening UK economy is driving investors to the euro,” said Angus Campbell, head of sales at Capital Spreads.
“There are very few people betting against a 1:1 rate now.”
The dollar also came under pressure after recent disappointing US economic data and the Federal Reserve’s shift towards quantitative monetary easing undermined the greenback.
The dollar fell 1.4 per cent against the euro and shed 2.5 per cent against the Swiss franc, whose safe-haven appeal was helped by rising geopolitical tensions.
– (Financial Times service)
