After the recent optimism-led market rally, oil prices have bounced back higher as the talks between the US and Iran begun to show signs of stagnation. While the US announced last Wednesday that it would extend the ceasefire agreement indefinitely, to allow diplomatic discussions to continue, markets are growing ever more sceptical about the likelihood of a nearterm resolution. The conflict, which has now entered its eighth week, has caused market volatility since it began; rising energy prices are beginning to feed through to the broader economy, adding to margin pressures for businesses and further eroding consumers’ real purchasing power.
The International Energy Agency reported a 3% rise in global electricity demand last year and forecast annual growth equivalent to adding Canada’s entire power consumption each year until 2035. AI data centres and electric vehicles played a role, but most of the increase came from more traditional sources, notably manufacturing and heavier use of air conditioning. Solar power accounted for more than a quarter of the growth in global energy supply, marking the first time a modern renewable overtook fossil fuels. With the conflict in the Middle East putting a strong focus on energy security, this could pave the way for more opportunities within the energy infrastructure space.
US Equity Market:
US stocks had an up-and-down week last week. Starting the period with relative optimism, the S&P 500 dropped last Tuesday following indications of stalling Middle East peace talks, before rebounding on Wednesday after the extension of the ceasefire. The index finished the week to Friday marginally up. Tesla served as a detractor to performance over the week, falling over 3% into Thursday. This fall came despite the announcement of strong first quarter earnings growth of 17% as increased capital spending plans of $25 billion for 2026, up from the previously guided $20 billion, prompted caution for investors.
Last Monday it was announced that Apple CEO, Tim Cook, would step down in September – ending a 15-year tenure where the company’s market capitalisation grew from $350 billion to over $4 trillion. He will be succeeded by hardware engineer, John Ternus, who has risen the ranks in his 25-year Apple career. Market response was largely neutral, with the stock broadly flat over the week.
On the topic of successors, Kevin Warsh, the man elected to replace Jerome Powell as Chair of the Federal Reserve, appeared before the Senate Banking Committee last Tuesday for his confirmation hearing. Warsh would need the support of a majority of the committee’s 24 senators before his nomination proceeds to a vote in the full Senate. Timings for the latter remain uncertain given ongoing investigations into the $2.5 billion refurbishment cost overruns for the central bank’s headquarters.
UK Equity Market:
The impact of the war in the Middle East is beginning to filter through into UK economic data. In addition to a largely anticipated inflation print discussed below, statistics revealed that business activity in the UK has grown more than anticipated. This would typically be good news; however, analysts have attributed this rise to companies bringing forward purchases due to concerns about shortages or rising costs, therefore artificially raising the index.
It was a below average week for UK stocks, with the FTSE index falling 2.6% over the week to Friday. Despite a broadly expected inflation print, the index suffered losses due to falls in a few single names. Amongst others, both Sainsburys and WHSmith saw falls of 5.7% and 11% respectively. These falls were driven by both corporates accompanying their respective earnings releases with profit warnings tied to the outcome of the conflict in the Gulf.
Inflation, Interest Rates and Bond Markets:
Data released by the Office for National Statistics last Wednesday revealed that the CPI Index for the UK economy in the 12 months to the end of March rose 3.3%, in line with analyst expectations despite rising 0.3% over the month. Even with this reacceleration in inflation, the Bank of England’s Monetary Policy Committee is expected to hold its rate at 3.75% when it meets this week.
European economic activity has also dramatically reversed off the back of surging energy costs, with the S&P flash Eurozone Purchasing Managers’ Composite index falling 48.6 points in April, stoking stagflation fears and adding to the challenge facing policy makers. The European Central Bank remains widely expected to maintain rates at 2% when it also meets this week, but investors continue to price in two quarter-point raises by the end of 2026.
What’s on the horizon
This week is an exceptionally busy period for financial markets and economic releases. Tech giants Alphabet, Amazon, Meta and Microsoft are all set to announce earnings, alongside pharmaceutical companies AstraZeneca and Eli Lilly – with investor focus on the latter two potentially heightened given the favourability for ‘defensive’ names amidst ongoing economic uncertainty. The week will conclude with updates from energy majors Chevron and ExxonMobil on Friday.
Monetary policy will be equally in focus, with a series of key central bank decisions. The Bank of Japan will lead tomorrow, followed by the Bank of Canada and the Federal Reserve on Wednesday. Attention will then turn to the Bank of England and the European Central Bank on Thursday.
In addition to earnings releases and monetary policy decisions, there will also be macroeconomic data releases around the globe. This will include releases for Germany, China, Japan, the US and the EU and will provide insight into global inflation trends.
This material has been written on behalf of Cambridge Investments Ltd and is for information purposes only and must not be considered as financial advice. We always recommend you seek financial advice before making any financial decision.
Past performance is not a guide to future performance.
The value of your investments can go down as well as up and you may get back less than you originally invested.
Source of financial market data: MorningstarDirect.