A return to the AI trade and an outstanding quarterly reporting season have cushioned the blow from the Middle Eastern conflict.
The has taken a back seat of late as the technology trade has reasserted its influence across other global markets, including the US and Asia in particular. Even so, a strong showing from the mining sector driven in part by a strong copper price and Intertek’s acceptance of a bid from EQT, which propelled its shares higher by up to 8% lifted the index to a robust opening and leaves the premier index ahead by 4.2% so far this year.
The more domestically focused has been under some pressure, not least due to the uncertainty surrounding the UK economy as the political machinations continue to play out in Whitehall. Nonetheless, the index opened higher at the open given its own exposure to the mining sector, dragging the index back into positive territory for the year, albeit by a marginal 0.5%.
Meanwhile, the latest US inflation reading is a reminder that the effects are beginning to wash through to the US economy. The rose by 0.6% in April, to 3.8% and ahead of the 3.7% which had been expected. Not only was the reading the highest for three years, there is every possibility that the ascent will continue into May at the very least.
With the still at elevated levels, up by more than 50% since the start of the conflict and having doubled in the year to date, the effects are clearly showing, especially on prices at the pump as the populace prepares for the summer driving season.
Even after the end of what is becoming a prolonged stalemate, it will take several months until the supply chain can be reestablished. As such, the possibility of an from the Federal Reserve has all but been priced out for this year, despite the dovish tilt of the incoming Fed Chair. Indeed, the likelihood of a Fed hike to combat persistent inflation has risen over the last week to around 35% which, while not the base case, is nonetheless a figure which investors will continue to monitor closely.
Elsewhere, a ceasefire which the US President described as being on “massive life support” is showing signs of creaking. The latest reported counterproposal from Iran revealed an insistence on full sovereignty over the Strait of Hormuz, the lifting of economic sanctions and war reparations, which the US has simply called “unacceptable”. The imminent meeting between the US and China will undoubtedly focus on the conflict and any potential diplomacy which the Chinese may be able to offer given its relationship with Iran. Of equal importance could be discussions around the current tariff truce, although issues remain in place on rare earths.
The inflation reading and general uncertainty was enough to propel a switch which was enough to push the more technology-driven and into the red, with the likes of Micron Technology (NASDAQ:) and Advanced Micro Devices (NASDAQ:) giving up a fraction of their stellar gains over the last month. Even so, the recent rally has left the main indices in good shape, with the , S&P 500 and Nasdaq having added 3.5%, 8.1% and 12.2%, respectively in the year to date.
Asian markets were mixed overnight, with South Korea’s Kospi index regaining its poise after a sharp drop earlier in the week, when a senior figure in the administration suggested that the government could redistribute corporate windfall AI profits to citizens. Such a move has yet to be confirmed, although the more general global implications of such a suggestion given the rise in unemployment which AI could eventually bring is an interesting development.