A FRAGILE TRUCE
Equity markets rallied last week as a two week truce was called in the Middle East to allow the US and Iran to enter talks aimed at ending the conflict in the Gulf region. US inflation data on Friday showed an expected spike and markets sold off slightly as inflation pressures and strains on the ceasefire dampened investor sentiment.
Over the weekend, US Vice President JD Vance announced that talks had stalled following Iran's refusal to relinquish its' nuclear ambitions. President Trump announced that the US would immediately block traffic on the Strait for any ships that had paid Iran for passage. Viktor Orban conceded defeat in the Hungarian elections marking the end of a 16 year stint in power.
This week, markets will continue to watch developments in the Middle East, European Inflation data is released, Washington hosts peace talks between Israel and Lebanon and earnings season kicks off with the big US banks taking centre stage.
Developments in the Middle East continued to dominate markets last week. After threats of serious escalation by the US on Tuesday, a two week truce was announced early on Wednesday with both sides agreeing to enter talks hosted by Pakistan. Equity markets on both sides of the Atlantic rallied strongly as Iran agreed to open the Strait of Hormuz to traffic once again. The fragility of the peace was clear from the off as Israel stepped up attacks on Lebanon and Iran launched strikes against Gulf States energy infrastructure. On Friday, US inflation data showed that Consumer Price Inflation had jumped from 2.4% to 3.3% year on year. Despite the rise, the result was in line with expectations as economists had predicted a flow-through to broader prices from high energy prices. Over the weekend, US Vice President JD Vance indicated that talks with Iran had stalled with the Islamic Republic's refusal to shelf its' nuclear programme the main sticking point. President Trump announced that the US would immediately blockade the Strait of Hormuz and refuse passage to any ships that had made payment to Iran.
The S&P 500 finished the week up 3.56% (-0.42% YTD) whilst the STOXX 600 in Europe added 3.05% in the week (3.82% YTD). Optimism over the truce in the Middle East was the main driver.
Bond yields diverged last week, (bond yields fall as bond prices rise) on both sides of the Atlantic. The 10-year US Treasury traded flat last week to settle at 4.34%. After falling on news of peace talks, yields clawed their way back on Friday following a jump in inflation data. The German bund equivalent rose by ~7bps to 3.04%.
- Tue 14th - US Producer Price Inflation (PPI)
- Thu 16th EU - Consumer Price Inflation data * US - FOMC meeting minutes
This is intended as a general review of investment market conditions. It does not constitute investment advice and has not been prepared based on the financial needs or objectives of any particular person.