President Donald Trump stepped back from his previously hardline stance on resuming the ceasefire with Iran on Tuesday. At the request of Pakistani authorities, he announced that the current pause in military operations would continue for an indefinite period. The ceasefire is expected to remain in place at least until Iran submits its proposed terms for ending the conflict to the United States, after which further discussions may take place.
Market sentiment remains cautious. U.S. futures are trading higher this morning, recovering from losses in the previous session. In contrast, European equity futures are pointing to a weaker open, while Asian markets are showing little direction, reflecting investor concern that the conflict could become increasingly prolonged and destabilising.
Also in the U.S., companies are set to receive substantial tariff refunds following successful legal challenges to trade measures introduced during the Trump administration. After courts invoked the International Emergency Economic Powers Act to block parts of the tariff regime, businesses may now reclaim close to $200 billion. The development has sparked debate, with critics arguing that while consumers previously absorbed higher prices, large corporations are now positioned to benefit disproportionately from the refunds.
U.S. consumer activity also showed strength. Retail sales rose by 1.7%, marking the largest monthly increase since March. While part of this rise was driven by a 15.5% surge in gasoline prices linked to geopolitical tensions, spending was broadly robust across most categories. Recent tax refunds have also supported consumer purchasing power, contributing to the overall resilience.
In the UK, labour market data provided a more positive backdrop. The unemployment rate fell to 4.9% in the three months to February, down from 5.2% in the previous period. This shift is largely attributed this improvement to a rebound in hiring activity prior to the escalation of tensions in Iran. However, there are growing concerns that rising energy costs could soon weigh on hiring decisions, as businesses look to manage increasing input costs.
There was also some encouraging news for the Bank of England. Private sector wage growth edged down slightly to 3.2% from 3.3%. As the Bank closely monitors wage pressures when setting monetary policy, this modest easing may help alleviate inflation concerns at the margin. That said, uncertainty remains elevated, particularly regarding the impact of the ongoing energy shock and the timing of any potential interest rate cuts.
Inflationary pressures remain a concern for the region, however. Headline inflation rose to 3.3% in March, up from 3.0% in February, largely driven by higher energy prices. While there are expectations that oil price movements could eventually feed into core inflation, the latest data does not yet show this effect. Core inflation eased slightly to 3.1%. However, services inflation remains sticky, rising to 4.5% from 4.3%, indicating persistent underlying price pressures in the domestic economy. This morning, markets have largely shrugged off the latest jump, with the FTSE opening higher at start of trading.
Still to come this week we have Eurozone consumer confidence, UK PMI and retail sales, and Japan’s inflation rate.
Nicola Tune, Portfolio Specialist