Global markets go back into the red..
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| The 'whiplash' recovery was (as expected) short-lived for financial markets.
GBP v USD is down, global stock prices are down, oil has moved up closer to $100 and UK bond yields are higher (30-year gilt now at a 27-year high). Investor sentiment is back in 'risk-off mood'.
Despite President Trump's comments Monday night and last night that suggest the Iran-US war is nearly over, it isn't. Instead, Iran are leveraging their access to the Strait of Hormuz to retaliate by hitting tankers and therefore energy prices.
GBP v EUR continues to trade favourably as the energy price shock means both economies will be hit, but the interest rate premium stays with the UK that much longer with money markets now starting to price in no UK interest rate cut for this year.
Yesterday, we had a number of EU officials comment on the economy post the Iran-US war. Inflation can be expected to rise beyond 3% if energy prices stay elevated for much longer and a 0.5% economic growth hit, putting the forecast under 1% for 2026. Not catastrophic, but certainly 2-steps back after a successful 2025 rebuild.
Finally, the US has launched a Section 301 investigation into 16 trading partners over excess manufacturing capacity. The probe into countries like China, India & the EU will highlight whether unfair trade practices have been at play.
In other words, a new wave of trade tariffs are inbound (UK unaffected for now). A public hearing is scheduled for May 5th with new levies expected in July. Another serious headwind is headed this way..
Tomorrow's UK GDP number is important, but far less so since the Iran-US war started as the landscape has changed. We expect to see a positive result for January, but i'm unsure if this will help Sterling at all as traders will be looking to March data on-wards for the new real picture on economies. |
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