Investors begin to look beyond the conflict

Oil dropped below US$80 a barrel for the first time since March yesterday following the US-Iran deal to reopen the Strait of Hormuz.
 
While it’s true that the deal is fragile, and critics like the European Central Bank are right to point out that the conflict will leave scars, a sizeable repricing is underway; stocks surged and bond yields eased as investors have pared bets on central bank rate hikes. Brent crude should fall to US$80 during the final three months of the year and average US$75 for next year, Goldman Sachs forecasts – the investment bank’s worst case scenario had oil prices hitting US$130 by the end of the year.

Sales rates

For global housing markets, the news will enable some central banks to gradually refocus on supporting weakening economies. Questions will remain for others – the value of residential property sold in Dubai during May fell 42% compared to April, according to Dubai Land Department figures. The 22.5 billion dirhams is roughly half the total recorded in February, before the conflict began.

The data, covered by Bloomberg, shows that values remained relatively resilient in the face of steep falls in activity. Prices for homes still under construction are down less than 9% this year, while values for completed properties are unchanged.

Performance during the rest of the year will depend on how sentiment among international buyers recovers. New development launches have slowed sharply and developers are likely to focus on existing projects until they feel confident about where sales rates will stabilise.

Signs of weakening

UK mortgage lenders are emerging from another sluggish spring, so they wasted no time in cutting rates. Nationwide was the first major lender to move yesterday; its 4.29% two-year fixed-rate mortgage at 60% loan-to-value is now the cheapest on the market. Santander will make cuts to its range tomorrow morning.
 
There is scope for more given that official inflation figures came in weaker than expected this morning. The rate of price rises held steady at 2.8% during the year through May. Economists had expected a rise of 3%. Services prices climbed 3.8%, which will be cause for concern among policymakers, but a hold at Thursday’s meeting is viewed as highly likely.
 
The housing market has remained resilient given the rise in mortgage rates and level of uncertainty, but some indicators are beginning to show signs of weakening. Asking prices for homes listed in late May and early June fell 0.6% compared to the same period a month earlier, according to Rightmove. That’s the biggest fall for this period in 14 years.
Buyer demand fell 10% in May, the figures show. Sales agreed were 6% below their level a year earlier but similar to 2024 volumes.

In other news…

Data centre deals attract billions despite geopolitical tensions (FT).