• FTSE 100 underperforms as BoE economist Pill strikes cautious tone.

  • Oil on the rise amid ongoing Middle East concerns.

  • US jobs report likely to ease recession talk.

European markets are making tentative gains in early trade today, as concerns around a potential flare-up in the Middle East continue to cast a shadow over global equities. The trajectory of the US economy remains a key component of market sentiment, as the continued improvements being highlighted in the lead up to today’s US jobs report help ease concerns around a potential burgeoning recession. A resurgence in Crude oil has hampered sentiment this week, with the prospect of an inflationary surge dampening the prospect for easing next year.

The FTSE 100 has struggled for positive momentum in early trade, with much of the index losing ground despite a sharp rise in the latest construction PMI figure. The banking sector has provided the main tailwind this morning, with traders taking a more cautious approach following comments from BoE Chief Economist Pill that struck a much less dovish tone than that from Bailey yesterday. While markets remain optimistic that we will see cuts in both November and December, Pill’s preference to remain restrictive in a bid to drive down underlying inflation does highlight the lack of a central dovish narrative that markets might believe exists.

Oil prices continue to rise, as markets weigh up the potential Israeli retaliation following an Iranian aerial assault that provided the basis for an attack that could yet target oil facilities. With Biden admitting that they are discussing the potential for an Israeli strike on Iranian oil facilities, we have seen the price of Brent crude rise to the highest level since late-August. For markets, the combination of a fresh wave of energy inflation and a significant expansion in the Middle East conflict does little to help sentiment in a period that also sees US earnings season and the US election ahead.

The US jobs report provides today’s main event, with traders looking out for a degree of stability after recent speculation that a surge in unemployment could form the basis of an impending US recession. Nonetheless, with markets expecting to see unemployment remain at 4.2%, and a marginally improved payrolls figure of 147k, those recession fears appear to be waning considerably. Yesterday’s ISM services PMI did provide a warning shot after posting the first contraction figure in three-months, although the bumper business activity (59.9) and new orders (59.4) metrics highlights a rapid pace of growth for businesses in the sector.

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