Stock markets gave up gains last week, with Friday’s sell-off seeing global markets down by about 0.7% on the week. The Israel / Iran conflict caused a retraction from risk assets, with the energy sector being the key beneficiary within financial markets. This helped the UK stock market which has a large allocation to the energy sector.
This week the focus will be on developments in the Israel-Iran conflict. Alongside this, we have 3 key Central Bank meetings (Japan, the US and the UK) as well as UK inflation data.
Last week
- Global stock markets fell by 0.7%.
- Oil prices rose sharply following the Israel / Iran conflict.
- Energy was the best performing sector: which helped the UK share market.
- UK economic data came in weaker than expected: which helped the bond markets as rate cuts got priced in more quickly.
- Trade tensions eased with tentative signs of progress between the US and China.
This week
- UK inflation data is out on Wednesday: expected to fall back to 3.3% from 3.5% (as per survey data by Economists on Bloomberg).
- The Bank of England meet on Thursday: expected to hold rates at 4.25%.
- The US Federal Reserve meets on Wednesday: they’re expected to hold rates at 4.5%. They will be releasing a new “dot plot” (which forecasts their expected rate levels), which will likely be the more interesting thing for markets.
| Equities and Oil | Last week (%) | YTD (%) |
|---|---|---|
| WTI Oil | 13.0 | 1.8 |
| Global | -0.7 | -1.5 |
| UK | 0.1 | 9.6 |
| US | -0.9 | -5.8 |
| Japan | 0.3 | -3.6 |
| Europe ex UK | -0.9 | 13.3 |
| Emerging | 0.0 | 1.0 |
| Bonds, Gold and Currencies | Last week (%) | YTD (%) |
|---|---|---|
| Gold | 3.1 | 20.4 |
| Sterling Corporates | 0.7 | 3.0 |
| GBP vs Japanese Yen | -0.2 | -0.7 |
| GBP vs USD | 0.3 | 8.4 |
| UK Government Bonds | 0.7 | 2.2 |
| High Yield | 0.2 | 3.5 |
Source: Bloomberg. Currency GBP.
More details:
- Stock markets sold off by about 0.7% last week, with all the losses coming on Friday. This followed news that Israel had launched a series of airstrikes targeting Iran’s nuclear facilities and military leaders. Iran responded with a retaliatory attack later on Friday. This led to a surge in oil prices and a broad sell-off in stock markets.
- Energy was the best performing sector last week: helped by the 13% rise in the oil price. This benefited the UK stock market, which has roughly a 10% weighting to the energy sector, with BP and Shell both up by 6.9% and 4.9% respectively on the week.
- It was a case of “bad news equals good news” for the UK last week, as weak economic data increased the chances of interest rate cuts coming sooner than had previously been expected. UK bond markets rose on the back of this.
- UK Monthly GDP (Growth) for April came in at -0.3%, the unemployment rate ticked up to 4.6% (a 4-year high) and wages grew slower than expected (at a rate of 5.3% Year-over-Year looking back over the last 3 months). Combined, this helped bond yields fall over the course of the week.
- UK Government bonds rose by about 0.7% last week, with the 10-year gilt yield closing out the week at 4.55%. UK credit markets performed marginally better, with spreads contracting a touch to generate gains at an index level of 0.74%, which takes gains for the year to c3%.
- Trade tensions eased last week, with the US and China reaching a “framework” to extend the Geneva truce and ease tariff tensions. Details were thin on the ground and the deal still needs formal sign off between Presidents Trump and Xi. In addition to this, there was further positive news on the trade front with Treasury Secretary Scott Bessent indicating the Trump administrations 90-day pause on tariffs (set to expire on July 9th) could be extended for those countries “who are negotiating in good faith”, with Bessent making specific mention to the EU.
The value of investments and the income from them can go down as well as up and you could get back less than you invested. Past performance is not a reliable indicator of future performance.
The content of this article is not intended to be or does not constitute investment research as defined by the Financial Conduct Authority. The content should also not be relied upon when making investment decisions, and at no point should the information be treated as specific advice. The article has no regard for the specific investment objectives, financial situation or needs of any specific client, person, or entity.
