Week ending 19th April 2024.

Financial markets embarked on a roller coaster ride this week, navigating through geopolitical tensions and interest rate uncertainties. Stocks retreated from their highs as investors grappled with escalating tensions between Israel and Iran, prompting a cautious stance across the board.

Tensions in the Middle East have caused volatility in the markets, especially in commodities like oil. Reports of explosions in an Iranian city on Friday, purportedly due to an Israeli attack, initially rattled markets. However, Iran’s measured response, indicating no immediate plans for retaliation, eased fears of immediate escalation, albeit leaving some uncertainty about the situation’s real impact. As always, our investment management team will continue to monitor developments closely, conscious of potential downside risks while also ready to capitalise on short-term opportunities.

US stocks retreated as investors adopted a more cautious stance amidst Middle East tensions and adjustments to interest rate expectations. In addition to hearing from Federal Reserve Chair Jay Powell this week, other Fed officials signalled a patient approach to interest rate adjustments. Recent economic data prompted officials to express caution, with concerns over the timing of potential rate adjustments influencing market sentiment.

In the UK, retail sales remained stagnant in March, disappointing analysts who had anticipated growth. Nevertheless, there was a glimmer of positivity as the yearly growth rate rose by 0.8%, bouncing back from a revised 0.3% decline in the previous month. This data painted a nuanced picture, revealing a mix of sectors experiencing setbacks alongside others showcasing resilience.

Despite these nuances, heightened oil prices and persistent inflationary pressures prompted financial markets to revise their expectations for the timing of the UK’s first interest rate cut. Previously anticipated for June, this move is now expected to occur sometime in Autumn.

However, amidst these market adjustments, Bank of England Governor Andrew Bailey struck a contrasting note of optimism at the International Monetary Fund’s annual meeting. He pointed to signs of disinflation occurring alongside what he termed as “full employment.” Bailey expressed confidence in the compelling evidence of progress in the UK’s economic landscape.

Chinese equities witnessed a mixed performance, with the Shanghai Composite Index rising while the Hang Seng Index in Hong Kong experienced a decline due to geopolitical concerns. China’s GDP exceeded expectations in the first quarter, signalling economic resilience, although other indicators such as industrial production and retail sales presented a varied picture.

Looking ahead, market participants will closely monitor preliminary PMI data from key economies, including the UK, Europe, US, and Japan. Additionally, upcoming data releases on durable goods orders, GDP, and Core PCE inflation in the US will provide insights into the resilience of the economy. Mega-cap technology firms, including Microsoft, Google, and Meta, will all be reporting earnings next week, with investors closely watching for signs of any weakness.

Kate Mimnagh, Portfolio Economist

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