HL commentary as it happens

US stock futures dip – initial jobless claims numbers later today

US Stock futures are also down today, with shares likely to give back some of this week’s gains when the opening bell rings. Weekly initial jobless claims numbers are out later today. So far through the conflict, the American labour market has proved resilient, which has contributed to rate-cut expectations moving out to at least the end of the year. Consensus forecasts are for a small rise in claimants from last week’s 207k to 212k, which is still well below the long-term average.

Brent crude above $103 per barrel as Iran tightens grip on key waterway

Brent Crude has risen every day this week and now sits at over $103 per barrel. Shipping in the Gulf remains severely disrupted, with the US intercepting at least three Iranian tankers and Iran restricting nearly all international traffic through the Strait of Hormuz. Washington warned that it could take up to six months to clear the waterway of mines.

Losses extended after the UK flash PMI release

The S&P Flash UK PMI for April showed an upturn in both services activity, which reached a two-month high of 52.0, and manufacturing, which was the strongest print in 47 months at 53.6. But there’s a major caveat. Much of this increased momentum comes from a dash to lock in purchases, on fears of price rises and supply chain disruption from the war. An underlying decline in business confidence and a weak outlook for the labour market tallies with our view that Bank of England lending rates are likely to hold steady until firm progress towards the end of the Iran war is made. The FTSE 100 is down circa 50 points further following the release.

UK inflation increased to 3.3% as the impact of the Middle East conflict flowed through to fuel prices

UK inflation increased to 3.3% as the impact of the Middle East conflict flowed through to fuel prices. This increased from 3% the previous month and was in line with analyst expectations.

While the increase in prices will be felt keenly at the petrol pump, it is highly unlikely a single inflation print will be enough to sway policy makers into moving the Bank of England base rate next week – though market watchers will be eagle eyed to see the vote split, as members of the MPC will likely be divided.

Inflation is likely to remain elevated in April too, and markets are now pricing in one rate rise later this year. But our house view is that rates are held through the conflict – returning to the expected rate cutting cycle later than forecast just a couple of months ago, but on path to neutral next year.

The pound didn’t move on the news, such was the increase expected, and it is unlikely to move UK markets when London opens this morning. But that doesn’t mean increased inflation will be ignored forever. Warnings in the recent days have come from the International Monetary Fund and the EY Item Club – specifically calling out the UK’s specific vulnerability to the impact of the war due to our reliance on Middle Eastern energy, global supply chains – and starting point of already anaemic growth compared to other G7 nations.

President Trump extended the ceasefire overnight, but Asia markets are not optimistic

Overnight, the US President announced that he would be extending the ceasefire with Iran, which was due to conclude yesterday. The news sent US futures higher across both the S&P 500 and the NASDAQ tech index, and the oil price fell slightly too. But the ceasefire extension last night has not done enough to entirely quell markets this morning, with mixed reaction on the board. Markets will be balancing the positive news of a continued ceasefire with the other news flow – peace talks are not progressing, and the Strait of Hormuz remains closed. Bloomberg calculates that 100 fewer ships a day are getting through the Strait, compared to pre-war volumes.

Oil dips as Iran engages in another round of talks

Oil prices dipped back this morning as reports emerged that Iran will send a delegation for further talks with the US, trimming some of the geopolitical risk premium that had built up in recent sessions. That said, with the Strait of Hormuz still blocked and peace negotiations far from guaranteed, energy markets remain highly sensitive to shifting headlines, which continues to feed directly into broader equity volatility. That uncertainty keeps inflation risks in play and muddies the outlook for interest rates, reinforcing the case for ongoing market swings even as equities attempt to price in an eventual resolution.

UK labour market data shows early signs of softness

UK labour market data is starting to show early signs that higher energy costs linked to the Iran war are feeding through into business hiring plans, with payroll employment falling by 11,000 in March and job vacancies slipping from 721,000 to 711,000. Pay growth is also beginning to ease, with average earnings slowing to 3.8% and the more timely PAYE median pay measure suggesting further softening could be on the way. For investors, a loosening labour market reduces the likelihood of further interest rate hikes, which helps to firm up our view that the Bank of England will keep things on pause until the conflict plays out.

Equity markets stage a small bounce back

Equity markets look set to bounce back a touch today, with US futures pointing higher after yesterday’s oil-led selloff that saw energy stocks outperform while much of the broader market slipped. The recent yo-yoing in equity sentiment continues to be driven less by fundamentals and more by swings in oil prices, as investors try to second-guess how Middle East negotiations are progressing. Fresh talks are pencilled in, but timelines for any lasting agreement remain unclear, leaving investors caught between elevated geopolitical risk and hopes that a workable outcome will ultimately be reached – with markets showing a willingness to price in the latter. As earnings season gets underway, that backdrop could translate into a run of solid results paired with cautious outlooks, as executive teams acknowledge the potential impact of higher energy costs without committing too heavily to guidance in an environment where volatility is likely to remain a feature.

PMI and inflation data on the table

There are several big economic data points to keep an eye on, too, as markets weigh up the impact of the conflict on inflation and demand. US retail sales in March are expected to show further resilience tomorrow with a forecasted 1.3% increase. On Wednesday, expectations for UK CPI data have been moving up since the conflict broke out, and March price increases are now expected to be nudging 3.5%. Anything higher is likely to be negative for sentiment towards UK equities, but we still think domestic rates will remain on hold while the conflict continues. Attention then shifts to PMI Thursday, with headline numbers for the US, the Eurozone, and the UK providing a more forward-looking snapshot of the global economy.

Warsh testimony to the Senate in focus tomorrow

Interest rate expectations continue to bounce around, hanging on every twist and turn in the Gulf. But Kevin Warsh's testimony to the US Senate tomorrow could provide a longer-term steer on the direction of American monetary policy as the Fed chair frontrunner sets out his credentials for the role. Central bank independence and the potential for structurally lower rates as AI productivity gains start to bite are likely to be key points of focus.

Asian stocks gain, weak start for European and US markets

The rhetoric has once again intensified as attention moves towards a second round of negotiations between Tehran and Washington in Pakistan, but it's not at all clear whether these discussions will take place. Whether this impasse proves to be merely a detour on the path to a resolution remains to be seen, but more volatility would seem the most likely outcome. Asian Pacific indices were mainly up overnight, but European indices and the FTSE 100 have given back some of Friday’s gains, and US stock futures are down.

Key chokepoint closed again after weekend clashes

The path to de-escalation in the Middle East took one step forward and two steps back over the weekend. Over 20 freight vessels carrying mainly energy cargoes passed through the Strait of Hormuz on Saturday after Iran signalled the reopening of the critical thoroughfare. But by Sunday, reports surfaced of shots being fired at a commercial vessel by Iranian forces, and the seizure by the US Navy of an Iranian freighter.