Sponsored content
Andrew Gillham, head of fixed income at Team Asset Management, offers this week’s global market review
GLOBAL markets rallied last week after the US president signalled that the US and Iran were nearing a deal to end the conflict in the Middle East. The blue-chip S&P 500 index gained 3.2%, erasing all its losses in the initial phase of the war and it broke through the 7,000 level for the first time to hit an all-time high.
Investor sentiment was also lifted by a strong start to the first-quarter corporate earnings reporting season. Wall Street’s “big six” banks – JPMorgan Chase, Goldman Sachs, Citigroup, Morgan Stanley, Bank of America and Wells Fargo – reported record combined profits of almost $50 billion during the quarter, boosted by a surge in trading activity amid volatile markets and deregulation under the Trump administration.
The stellar profits and looser regulation also enabled the banks to spend a record $33 billion on share buybacks during the quarter. JPMorgan chief executive Jamie Dimon asserted that his bank still had around $40 billion of excess capital which will allow it to continue buying back stock and grow its loans and trading books.
Closer to home, shares in Tesco climbed to their highest level in a decade after it reported that its profits had risen by 8.5% in the year to 28 February to £2.4 billion. Under chief executive Ken Murphy, the supermarket chain has increased the number of products it price matches to discounters Aldi and Lidl and expanded the number of offers under its Club loyalty programme, which has helped it to maintain its leading 28% share of the UK grocery market.
Murphy dismissed warnings from the UK’s Food and Drink Federation that food inflation could hit 9% this year owing to the blockade of the Strait of Hormuz but the retailer widened this year’s operating profit guidance to between £3 billion and £3.3 billion, reflecting the uncertainty over how long the conflict will last.
The impact of the war has been felt much more immediately by the travel industry.
Shares in the low-cost airline EasyJet fell after it revealed that soaring jet fuel prices cost it £25 million in March and it expects to suffer a loss of up to £560 million for the six months to the end of March.
EasyJet has hedged 70% of its fuel costs for the peak summer holiday period but is counting on a surge in late bookings for July to September to generate enough profit to compensate for the low season in which it typically loses money.
Shares in Netflix fell 10% on Friday after announcing that Reed Hastings, its chair and co-founder, would step down from the company’s board in June. Hastings transformed the company from a DVD-by-mail service into the $400 billion video-streaming giant it is today.
Although its first-quarter profits of $5.3 billion was almost twice as much as during the same period a year ago, it was boosted by the one-off $2.8 break fee it received from Paramount after it walked away from a deal to acquire Warner Brothers Discovery in February.
Commodity markets remained choppy, in thrall to any comments from the US president and the Iranian regime.
Brent crude fell by $6 to $92 a barrel on Friday, its lowest level in more than a month, after Iran said it would reopen the Strait of Hormuz following the ceasefire agreement between Israel and Lebanon. However, the move was short-lived, as Iran’s Revolutionary Guard re-imposed its closure of the strait over the weekend with the US blockade remaining in place.
Bond yields also fell on hopes that a US-Iran deal would limit the inflationary shock from the closure of the critical maritime bottleneck through which 20% of the world’s oil consumption and vital commodities pass. Better news for anyone looking to obtain, or renew, a mortgage.
Looking ahead, the focus will be on the latest round of peace talks between delegations from the US and Iran in Islamabad. It is also another busy week for corporate earnings reports, headlined by Tesla, Boeing and Intel.
