In the UK, the latest reading revealed that the economy contracted by 0.1% in April as the effects of the conflict began to take their toll on output, manufacturing production and general costs. However, the previous month had been relatively strong given that some consumers had brough forward spending in anticipation of the inflationary effects of the war, leading to a gain of 0.7% in the three months to April. Latterly the oil price has shown a net drop which, combined with the potentially positive impact of spending associated with the World Cup, could underpin growth in the months ahead.
The rode on the coattails of improved global investor sentiment, with a strong open which built on a resilient performance in the previous session. The gains came despite the oil majors following the oil price south, with a broad rally which included the housebuilders after a report suggesting that recent buying activity had been brisk. The likes of International Consolidated Airlines also saw the benefit of a falling oil price, putting on more than 4%, while the banks resumed their return to form with gains of 2% or more. Copper prices surged on the potential end to the conflict which lifted Antofagasta by over 4%, and the more general optimism added to gains for the FTSE 100 which is now ahead by 4.5% so far this year.
Markets staged a strong recovery on hopes that the Middle East conflict could finally be coming to an end, but for the US there is only one show in town today.
The highly anticipated IPO will debut today after what has been an unusual run-up. The price of $135 per share was announced in advance, Elon Musk reportedly negotiated special deals with Wall Street advisors, and the percentage of shares available to retail investors is much higher than would normally be the case. The offering will raise $75 billion for the company, which will be valued at $1.75 trillion. In addition, there will also be a number of forced buyers in the form of tracker funds. The has tweaked its rules, which has allowed SpaceX to join the index on a fast-track basis. It remains to be seen whether the company will have a disproportionate effect on the index in terms of weighting, but in any event its inclusion guarantees some additional and significant buying pressure.
Back on planet Earth, US markets regained some poise after a strong showing from chip stocks and a further announcement from President Trump. He stated that he had called off strikes which had been scheduled for yesterday evening, while also suggesting that a final deal to end the conflict was imminent. Of course, investors have heard this before on any number of occasions, but with a weekend deal possibly in the offing, oil fell by around 2% and bonds rallied, reducing yields, as inflationary fears lessened somewhat.
The timing could be important. After a reading the previous day showing that inflation was beginning to run hot, the increased by 1.1% in May, ahead of the 0.7% which had been estimated. More promisingly, , which strips out volatile food and energy prices, rose by just 0.4% against expectations of 0.5%, although in isolation the update does little to ease the decision of the when it meets next week. With inflation rising and the labour market strengthening, there are few if any reasons for an interest rate cut, with more probability of a hike and, in terms of the consensus, most probability of a no-change decision.
Meanwhile, the tech sector was back on its feet, providing fresh momentum to the market. The likes of Micron Technology (NASDAQ:), Advanced Micro Devices (NASDAQ:) and Intel (NASDAQ:) all rallied, while AI poster child added more than 2%, leading the iShares Semiconductor ETF (NASDAQ:) more than 8% higher. Intel was another standout performer following a broker upgrade with a 9% gain, restoring a breathless rally which has seen the stock add 197% this year.
The strength of the rebound has also restored a positive direction of travel for the main indices. In the year to date, the Dow Jones is ahead by 5.8%, while the S&P500 and Nasdaq have added 8% and 11% respectively. A gain of 16.5% for the index is further proof that the rally has been broadening to include the likes of smaller cap companies.