This week saw perhaps the two most predictable endings: Spain, tournament favourites, did not wilt under pressure, defeating Argentina to win the World Cup; whilst the ceasefire between America and Iran all but collapsed, with missiles being fired by both sides.
Unsurprisingly this led to oil heading back above $80 per barrel and touching close to $90 at the open this morning. Equity markets were broadly negative with global equities declining by 1.7% in local currency and 1.9% in sterling.
As we have become used to, the Strait of Hormuz became one of the key talking points – be it closed or open. The primary driver for this was the reemergence of the three T’s – Trump, Tariffs and TACO with a 20% fee on ships passing through the strait announced and almost as quickly removed.
Back here in the UK, the now regular changing of the guard at number 10 completed with Andy Burnham succeeding Sir Keir Starmer. Gilt markets continued with their negative view of the most recent inhabitant of Downing Street although the expected choice of Shabana Mahmood slightly becalmed investors with a 0.4% drop over the week. Ten-year gilts remain above 5% which is substantially higher than key economic competitors.
Having said that, UK equity markets were broadly positive, although this is more due to the fact that they are energy heavy and tech lite. We also saw a positive GDP print, a minor 0.1% month on month, but an improvement on the previous.
With AI continuing to dominate news flow it was IBM that surprised investors. Once the largest company in the world, a profit warning saw shares fall by close to 25%, a salutary reminder that diversification, even within sectors remains key.
In contrast to IBM, the US banks we saw opening reporting season fared much better. Goldman Sachs posted its highest ever trading revenue whilst JP Morgan delivered its sixth consecutive record quarter.
Economic news in the US was broadly positive with the Michigan consumer sentiment coming in at 54.4, well ahead of the expansionary 50 number. The same survey also suggested inflation expectations are falling. This will be music to Kevin Warsh’s ears who give his first report to Congress as Chairman of the Federal Reserve. He stated he was committed to restoring price stability and ensuring the inflation surge of the previous five years was a thing of the past. Falling inflation is expected to lessen the need for interest rate increases in the short term.
The week ahead remains busy for economic announcements, with all eyes on inflation numbers in the UK and US crude inventories on Wednesday, the ECB interest rate decision on Thursday being the most newsworthy.
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