Author: Fiona Craig

US equities declined at Monday’s open as technology stocks fell following calls from artificial intelligence industry executives to slow the development of advanced AI systems, while higher oil prices added to inflation concerns ahead of the Federal Reserve’s policy decision.

At 09:32 ET (13:32 GMT), the NASDAQ Composite was down 1.6% at 28,902.20 points. The S&P 500 fell 0.7% to 7,603.80, while the Dow Jones Industrial Average declined 0.2% to 52,451.40.

Technology was among the weaker areas of the market, with the S&P 500 technology sector falling more than 2%.

Investors Assess Potential Impact of AI Safety Debate

The technology-sector declines followed an essay from Anthropic CEO Dario Amodei calling for companies developing advanced AI models to reduce the pace of progress because of concerns over potential misuse.

“Progress will still seem fast, and we must make wise use of the time we gain,” Amodei wrote.

The essay followed Anthropic’s disclosure that several actors had used its Claude models for activities including weapons development and fraud.

OpenAI CEO Sam Altman and xAI chief Elon Musk also backed calls for a slower pace of advanced AI development, leading markets to assess whether the debate could affect the allocation of capital across AI-related projects.

Deutsche Bank analysts said any changes could affect the “composition of AI capex rather than its scale,” with companies potentially directing more spending towards areas including safety, monitoring and governance.

Altman separately said OpenAI would not pursue a potential initial public offering this year because of safety concerns.

Middle East Developments Push Oil Prices Higher

Oil provided another focus for markets after a planned meeting between Iran and Gulf Arab states was postponed.

The talks were expected to address the reopening of the Strait of Hormuz to maritime traffic. Oman’s foreign minister said the meeting had been delayed “in the interests of consensus.”

Iran’s foreign ministry said Tehran would coordinate with Oman to establish another date, according to Fars news agency.

Before renewed Middle East fighting began in late February, approximately one-fifth of global oil and liquefied natural gas supplies passed through the Strait of Hormuz.

Supply concerns were also affected by attacks from Iran-backed Houthi militants in Yemen. The attacks resulted in the closure of a major Saudi oil pipeline, while vessels in the Gulf were also targeted.

Brent crude futures briefly traded above $108 a barrel on Monday, extending gains from the previous week.

Federal Reserve Decision Moves Into Focus

The increase in energy prices has added to the inflation outlook after US consumer and producer price data remained elevated in August, with higher energy costs contributing to the readings.

Markets are now awaiting Wednesday’s Federal Reserve interest rate decision, with traders widely expecting policymakers to increase rates as they assess energy-related inflation pressures.

Vital Knowledge analysts summarised the two main factors affecting markets, saying: “Stocks are under assault from two main sources this morning: oil and AI.”

Zegona Communications (LSE:ZEG) shares rose more than 4% on Monday following a report that Telefonica (TG:TNE5) has approached the UK-listed telecommunications group about a potential acquisition of its Vodafone Spain business.

Spanish publication Vozpopuli reported that Telefonica had contacted Zegona in recent weeks regarding a possible purchase of the business, citing unnamed sources.

Report Points to Renewed Telefonica Approach

According to Vozpopuli, the discussions represent a renewed approach by Telefonica for Vodafone Spain.

The report did not provide details of a potential valuation or transaction structure, and no agreement was confirmed in the supplied information.

Zegona, a UK-based telecommunications investment company, owns and operates Vodafone Spain, while Telefonica is one of Spain’s major telecommunications operators.

Brent crude briefly moved above $108 a barrel on Monday as markets assessed further attacks affecting Saudi Arabia, disruption around regional shipping routes and the postponement of planned talks concerning the Strait of Hormuz.

Brent futures rose as much as 3.5% to $108.41 a barrel before trading at $107.37 by 22:42 ET (02:42 GMT).

US West Texas Intermediate futures increased 3.9% to $102.84 a barrel.

The latest price moves followed developments affecting both the Strait of Hormuz and Bab el-Mandeb, two shipping routes used for energy exports from the Middle East.

Saudi East-West Pipeline Closed Following Attacks

Yemen’s Iran-aligned Houthi group carried out additional attacks against Saudi targets over the weekend and increased its activity around Bab el-Mandeb.

The latest developments followed attacks during the previous week on several Saudi targets, including an Aramco refinery and fuel terminal, fuel plants and airports. Vessels operating around Bab el-Mandeb were also targeted.

Bab el-Mandeb has become more relevant to Saudi oil exports as some shipments previously transported through the Strait of Hormuz have been redirected towards the Red Sea.

Saudi Arabia said its East-West pipeline had also been shut following further Houthi attacks. The pipeline allows crude to be transported across the country towards the Red Sea, providing an alternative to routes through the Persian Gulf.

“Riyadh has now lost the option to use western exports if the Strait of Hormuz deteriorates again. This is likely to put further upward pressure on oil prices this week,” ANZ analysts said in a note.

Iran-Gulf Meeting Postponed

Oman’s foreign minister, Sayyid Badr Albusaidi, said a regional meeting between Iran and Gulf states that had been scheduled for Monday was postponed.

Expectations surrounding the meeting had contributed to a moderation in crude prices during the previous week as investors considered whether diplomatic discussions could lead to reduced disruption around the Strait of Hormuz.

The postponement left the timing of any rescheduled meeting uncertain.

Oil shipments through Hormuz have already fallen to a fraction of prewar levels following renewed hostilities between the United States and Iran in August.

The disruption of Saudi Arabia’s alternative western export infrastructure alongside reduced Hormuz traffic has left regional shipping conditions as a factor for oil markets.

Gold traded lower on Monday as investors increased expectations for a Federal Reserve interest rate hike following the latest US inflation data, while a firmer dollar and higher crude oil prices remained in focus.

Spot gold was down 0.4% at $4,331.84 an ounce at 02:28 ET (06:28 GMT), with gold futures falling 0.8% to $4,371.65.

Silver declined 1.0% to $63.88 an ounce, while platinum increased 0.2% to $1,802.94. The US Dollar Index advanced 0.3% to 99.42.

Bullion had declined 1.8% over the previous week, marking its third consecutive weekly loss, despite recording a gain on Friday.

Markets Price Higher Probability of Fed Rate Hike

The US core consumer price index increased 0.3% month on month in August, excluding food and energy prices.

Following the data, markets were pricing an approximately 88% probability that the Federal Reserve would increase interest rates in September. Such a move would represent the central bank’s first rate hike in three years.

Higher interest rates increase the returns available on interest-bearing assets, a factor that can affect demand for non-yielding gold.

The outlook for monetary policy also comes amid continued criticism of the Federal Reserve from US President Donald Trump, who again called for lower interest rates on Sunday.

Middle East Conflict Keeps Energy Prices Elevated

Developments in the Middle East continued to affect energy markets, with Brent crude moving towards $107 a barrel after rising almost 9% in the previous week.

A meeting between Iran and several Gulf countries scheduled for Monday was postponed. The talks were expected to address the establishment of a temporary shipping route through the Strait of Hormuz.

The postponement left uncertainty surrounding efforts to increase shipping through the waterway, while higher oil prices added another factor to the inflation outlook facing central banks.

ANZ Forecasts Three Fed Hikes by March 2027

Gold has remained around the $4,400 level in recent trading after recovering from approximately $4,000 in July.

ANZ expects further monetary policy tightening, forecasting three Federal Reserve interest rate increases of 25 basis points each by March 2027.

The bank expects geopolitical developments in the Middle East and higher energy costs to contribute to inflation. However, it also expects geopolitical uncertainty to continue supporting demand for gold as a safe-haven asset.

ANZ therefore maintained its 12-month gold price target of $5,400 an ounce.

The bank also pointed to recovering gold ETF holdings and speculative positions, as well as institutional demand in China and increased investor participation in India, as factors affecting investment demand for the metal.

Saudi Arabian oil exports could decline further if the country’s East-West pipeline remains offline, with industry sources estimating that available inventories at the Red Sea port of Yanbu could support current exports for another five to seven days.

The pipeline was shut on Friday following drone attacks and has been carrying around 4 million barrels of oil per day across the Arabian Peninsula to Yanbu. That volume is equivalent to approximately 4% of global oil supply.

The route has provided Saudi Arabia with an alternative to the Strait of Hormuz during the wartime disruption of shipping through the waterway.

Saudi authorities have not provided full details about the damage to the pipeline or indicated when operations are expected to resume.

One source cited by Reuters estimated that repairs could require five to six weeks. Another said the pipeline could return to service sooner, potentially operating at partial capacity while repair work continues.

Saudi Arabia Draws on Red Sea Oil Inventories

Three industry sources familiar with Saudi exports said Yanbu currently has enough oil in storage to sustain exports for around five to seven days.

Additional inventories are available at the Egyptian ports of Ain Sukhna on the Red Sea and Sidi Kerir on the Mediterranean, according to a fourth source. Those stocks could provide supplies to customers for several additional days.

Industry estimates put Yanbu’s storage capacity at around 35 million barrels. Ain Sukhna can hold approximately 18 million barrels, while Sidi Kerir has capacity for around 20 million barrels.

However, the sources said the facilities are not currently full, meaning available inventories would eventually be exhausted without the resumption of pipeline flows.

Saudi Production Falls to 6.2 Million Barrels Per Day

Saudi oil supply had already declined before the latest pipeline disruption.

The International Energy Agency said Saudi supply fell to its lowest level in more than 30 years in August as flows through the Strait of Hormuz and the Red Sea decreased.

Saudi Arabia told OPEC last week that production stood at 6.2 million barrels per day in August, compared with 10.9 million barrels per day in February before the war.

The IEA expects global oil supply to decline by 5.7 million barrels per day, or approximately 6%, this year.

Before the war, the Middle East supplied around 22 million barrels per day. Industry sources estimate that flows through the Strait of Hormuz have fallen to between 6 million and 9 million barrels per day.

Red Sea Developments Add to Export Constraints

Saudi Arabia had relied on the East-West pipeline during the previous six months to reduce its exposure to disruption in the Strait of Hormuz.

The pipeline transports crude across the country to Yanbu, allowing shipments to reach international markets through the Red Sea.

Separately, Houthi fighters in Yemen seized an island near the entrance to the Red Sea on Friday. The group has also threatened Saudi oil shipments.

With flows through the Strait of Hormuz already reduced, an extended shutdown of the East-West pipeline would further limit the routes available for Saudi oil exports.

European and British wholesale natural gas prices rose nearly 5% on Monday as markets assessed Middle East shipping disruptions and European storage levels.

The British NBP wholesale gas contract climbed almost 5% to 201.50 pence per therm, moving above 200 pence and reaching its highest level since late 2022.

In continental Europe, the benchmark Dutch front-month TTF contract gained around 5% to €83.40 per megawatt-hour, also reaching a multi-year high.

JERA Chief Highlights European Storage Levels

Yukio Kani, Global CEO and Chair of JERA, said European gas reserves remain low and disruption to shipping around the Strait of Hormuz could continue.

JERA is Japan’s largest power generator and a major buyer of liquefied natural gas.

According to Gas Infrastructure Europe data cited in the source, European underground gas storage facilities were approximately 68% full, around 17 percentage points below historical seasonal averages.

The storage position comes ahead of the winter period, when inventory levels are an important factor in European gas supply.

Middle East Disruptions Affect LNG Shipping

Military developments in the Persian Gulf have reduced LNG tanker traffic through the Strait of Hormuz, affecting concerns about Qatari exports and global LNG availability.

Developments involving Houthi militants near Red Sea shipping routes and strikes on regional pipeline infrastructure have added to uncertainty surrounding alternative transport routes.

The Strait of Hormuz is an important transit route for Qatari LNG exports, making shipping conditions in the region relevant to European and global gas markets.

Higher Energy Prices Follow ECB Rate Increase

The increase in natural gas prices coincided with a further rise in crude oil, with Brent gaining around 3% to trade near $112 a barrel.

Higher energy prices are being monitored for their potential effect on European inflation following the European Central Bank’s decision last Thursday to raise its deposit facility rate by 25 basis points to 2.50%.

Money markets were also assessing the implications of higher energy costs for the outlook for monetary policy in Europe and the US.

Goldman Sachs has revised its Bank of England interest-rate forecast and now expects a 25-basis-point increase in November 2026, citing higher inflation and continued economic growth.

The bank had previously forecast that UK interest rates would remain unchanged throughout 2026.

Goldman analysts said recent developments included increases in wholesale energy prices, a larger rise in headline inflation than the Bank of England had expected and stronger economic growth data.

Higher Energy Prices Affect Inflation Outlook

Oil prices have risen above $100 a barrel amid renewed hostilities in the Middle East, contributing to higher energy costs and changes in expectations for UK inflation.

UK economic data released earlier this month showed that the economy recorded its fastest annual growth rate in 18 months in July, supported by activity related to artificial intelligence and continued growth following the first half of the year.

Bank Rate Expected to Remain at 3.75% in September

Goldman expects the Bank of England to leave Bank Rate unchanged at 3.75% at its 17 September meeting, in line with consensus expectations.

The bank then forecasts a 25-basis-point increase in November.

Following the expected November move, Goldman forecasts that the Bank of England will keep rates unchanged as energy prices ease, before beginning to reduce interest rates in late 2027.

GSK (LSE:GSK) shares rose 2.5% to 1,815 pence on Monday after the pharmaceutical company reported results from clinical trials of two lung cancer treatments.

The company said Jideytro met the primary endpoint in its trial, with 94% of patients recording complete or partial tumour shrinkage.

Ris-Rez Trial Shows Reduction in Risk of Death

GSK also reported positive late-stage trial results for Ris-Rez, a treatment licensed from Hansoh Pharmaceutical (HK:3692).

According to the company, Ris-Rez reduced the risk of death by 54% compared with standard chemotherapy in patients with relapsed small cell lung cancer.