Weekly market commentary

Market review

It’s been yet another action-packed week for markets to digest, with some of the world’s largest companies reporting their earnings for the first quarter of the year. We also had a whole host of major developed market central banks announcing their policy interest rate decisions, while there is continued focus on the conflict in the Middle East and the impact this is having on oil prices and supply.

The week saw 44% of the S&P500 (by market capitalisation) reporting, including 5 of the so-called “Magnificent 7” companies, who between them account for around a quarter of the index. Google’s parent company, Alphabet, led the way and saw its share price rise almost 10% after reporting stronger than expected cloud revenue growth, at $20bn for the first 3 months of the year. Amazon reported higher than expected revenue at $181bn, driven in part by the performance of Amazon Web Services (AWS), which grew revenues by 28% compared to a year prior. Microsoft announced a welcome surprise, with its Azure business growing by 39% year-on-year, while Apple projected stronger than anticipated sales growth for the coming quarter. At an aggregate level, with just over 60% of the S&P500 having now reported, earnings growth stands at just over 30% - definitively surpassing analyst estimates of 14% growth for the index, albeit with 200 companies still to report. The results also show the resilience of technology and AI related companies, whose share prices have bounced back strongly following the Iran War-induced equity sell-off.

The US and Iran appear to have made little progress in agreeing a resolution to the conflict in the Middle East, which has closed the Strait of Hormuz for over 2 months now. The US continues to use a blockade to stifle supplies to Iran with little signs of a let-up, with Iran’s ownership of nuclear capabilities proving a key sticking point in negotiations. This put further pressure on oil prices, with Brent Crude tipping through $120 a barrel, before falling back. The global energy market has already begun changing, with the war being a catalyst for this. The UAE announced this week that after more than 60 years, it will be leaving OPEC, as it seeks greater agility in price setting and supply of its oil exports.

Outlook

Markets are currently beholden to news flow on the war in the Middle East, with rapidly changing rhetoric stoking volatility. Investors are weighing the implications of the conflict and its duration on macroeconomic factors and assessing what the policy responses may be from governments and central banks in tackling inflationary pressures from energy shortages and fears of slowing growth. Fiscal dynamics, liquidity conditions and shifting policy expectations are likely to reinforce cross asset and regional dispersion in the months ahead. Earnings remain solid and despite overall volatility, regional equity markets remain resilient with limited signs of recession presented in data.

Movers table