Weekly market commentary

A highly volatile week for markets actually began on firmer footing, as the latest developments from the war in the Middle East have been more constructive. A roadmap towards a deal between the US and Iran within 60 days has been laid out, while a de-conflict mechanism covering Lebanon and a direct communication line looking to avoid escalatory incidents and aiming to keep the Strait of Hormuz have been set up. Despite the usual mixed messages from both sides on the specifics of what has been agreed, markets focused on the immediate ramp up in the flow of traffic through the Strait of Hormuz; the number of vessels getting through being at its highest level since the conflict began. This has led to a sharp decrease in oil prices, with Brent Crude Oil falling almost 10% this week to pre-conflict levels (c.$72 p/barrel). 

The decline in oil prices has eased fears about a stagflationary shock, with government bond yields falling commensurately as investors price out aggressive rate hikes to deal with any inflation. This was also helped in the US by softer Core PCE Inflation data than expected (0.4% vs 0.5% exp), which is contextually important given this is the Federal Reserve’s preferred inflation metric. This came as a welcome boost to US Treasuries, which had suffered following hawkish rhetoric from new Fed Chair Kevin Warsh. Globally, data was generally positive this week, with Purchasing Managers Indices (PMI) for Europe, the US and Japan suggesting their economies were continuing to expand at a faster rate than predicted – though the UK disappointed on this front. 

Equities struggled as concerns about Technology stocks dragged global indices lower at the end of a volatile week; with renewed focus on component shortages, rising costs bases and forward looking profitability, as well as a possible delay to OpenAI’s IPO, weighing on sentiment. South Korea, one of the fastest growing equity markets over the last couple of years, had trading on its stock market suspended twice this week due to whipsawing price moves. It wasn’t all doom and gloom though, as Micron Technology smashed expectations for its earnings outlook; with profits at $31 per share being much higher than the $25.31 expected, while quarterly review of $50bn outpacing analyst estimates of $43.2bn.