Geopolitics remained the dominant driver, with Brent crude rising over the week to $105.33/bbl. President Trump extended the ceasefire mid-week, citing Iran’s “fractured” government, but the Strait remained effectively closed and US defence officials indicated mine clearance could take up to six months should disruption persist. Diplomatic progress proved elusive. Trump said he did not want to “rush” a deal, and a planned visit to Islamabad by envoys Kushner and Witkoff was cancelled after Iran refused fresh negotiations. President Pezeshkian’s insistence that Iran would not accept “imposed negotiations under threats or blockade” underlines the impasse, although weekend reports of a fresh Iranian proposal, albeit one that postpones nuclear talks, offer a tentative thread of hope as we begin the new week. Against this backdrop, US equities pushed higher last week, although the headline gains masked a more cautious undertone: market breadth narrowed, European equities sold off reflecting the region’s greater energy sensitivity, and bonds came under sustained pressure.
Economic data shows initial resilience
US data continued to surprise to the upside, with retail sales, a series-high ADP private payrolls print, and a flash composite PMI of 52.0 all signalling that activity is absorbing the energy shock better than feared. However, the same releases carried a stagflationary edge with input price pressures running at their fastest pace since late 2022. By contrast, the Eurozone composite PMI fell to a 17-month low of 48.6, firmly in contraction territory. The UK composite PMI surprised sharply higher to 52.0, although gilts continued to underperform as 30-year yields hit 5.6% on lingering political uncertainty around the Prime Minister’s position.
Stagflation pressures build
With oil sharply higher and growth signals diverging, the inflation repricing was arguably the most consequential development of the week. Markets pulled forward an ECB hike, with the June probability rising from 65.6% to 72.5%, even as activity data point to Europe sliding toward stagnation. Europe faces the prospect of hiking into a slowdown, while the Fed contends with sticky inflation against still-resilient activity. Late on Friday, news that the DoJ had dropped its probe into Fed Chair Powell raised hopes that Kevin Warsh’s nomination could be confirmed before Powell’s term expires on 15th May, with Senator Tillis subsequently lifting his block over the weekend. The G7 central bank meetings and mega-cap tech earnings ahead this week will be a meaningful test of how durable last week’s repricing proves.
Weekly Market Commentary
In summary
Iran/US conflict reaches an impasse
Geopolitics remained the dominant driver, with Brent crude rising over the week to $105.33/bbl. President Trump extended the ceasefire mid-week, citing Iran’s “fractured” government, but the Strait remained effectively closed and US defence officials indicated mine clearance could take up to six months should disruption persist. Diplomatic progress proved elusive. Trump said he did not want to “rush” a deal, and a planned visit to Islamabad by envoys Kushner and Witkoff was cancelled after Iran refused fresh negotiations. President Pezeshkian’s insistence that Iran would not accept “imposed negotiations under threats or blockade” underlines the impasse, although weekend reports of a fresh Iranian proposal, albeit one that postpones nuclear talks, offer a tentative thread of hope as we begin the new week. Against this backdrop, US equities pushed higher last week, although the headline gains masked a more cautious undertone: market breadth narrowed, European equities sold off reflecting the region’s greater energy sensitivity, and bonds came under sustained pressure.
Economic data shows initial resilience
US data continued to surprise to the upside, with retail sales, a series-high ADP private payrolls print, and a flash composite PMI of 52.0 all signalling that activity is absorbing the energy shock better than feared. However, the same releases carried a stagflationary edge with input price pressures running at their fastest pace since late 2022. By contrast, the Eurozone composite PMI fell to a 17-month low of 48.6, firmly in contraction territory. The UK composite PMI surprised sharply higher to 52.0, although gilts continued to underperform as 30-year yields hit 5.6% on lingering political uncertainty around the Prime Minister’s position.
Stagflation pressures build
With oil sharply higher and growth signals diverging, the inflation repricing was arguably the most consequential development of the week. Markets pulled forward an ECB hike, with the June probability rising from 65.6% to 72.5%, even as activity data point to Europe sliding toward stagnation. Europe faces the prospect of hiking into a slowdown, while the Fed contends with sticky inflation against still-resilient activity. Late on Friday, news that the DoJ had dropped its probe into Fed Chair Powell raised hopes that Kevin Warsh’s nomination could be confirmed before Powell’s term expires on 15th May, with Senator Tillis subsequently lifting his block over the weekend. The G7 central bank meetings and mega-cap tech earnings ahead this week will be a meaningful test of how durable last week’s repricing proves.
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References
Source: https://www.brooksmacdonald.com/resources/insights/weekly-market-commentary
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