Jenson Holmes, from Titan Wealth, offers this week’s review of the global markets
THIS week, markets remained focused on developments in the Middle East as tensions between the US and Iran escalated further.
The US launched additional strikes on Iranian targets following attacks on shipping in the Strait of Hormuz and Iran responded with further threats of retaliation and signalled that access through the strait would remain under its control.
Investors continue to watch the situation closely, as the Strait of Hormuz is a key route for global energy supplies. Recent data suggests tanker traffic through the region has fallen sharply again, raising concerns that oil supplies could remain disrupted and energy prices elevated.
Alongside the geopolitical backdrop, attention has turned to the potential economic impact of higher energy prices. The International Monetary Fund recently raised its inflation forecast, reflecting concerns that higher oil prices could make it harder to bring inflation back under control. However, it is worth noting that the International Energy Agency has announced that world oil demand is expected to fall for the first time since 2020.
Meanwhile, minutes from the latest Federal Reserve meeting showed policymakers remain divided on the outlook for interest rates. While some members believe rates could be modestly lower by the end of the year, others feel inflation risks justify keeping rates higher for longer. Markets will therefore continue to monitor both inflation data and developments in the Middle East, as these are likely to influence the timing of future interest-rate cuts.
In our view, central banks are likely to keep interest rates unchanged for several months while they assess how the economy develops. With inflation continuing to ease and businesses benefiting from increased investment in AI, there is currently little pressure for policymakers to raise rates further.
Against a backdrop of heightened geopolitical tensions, concerns over energy security and growing questions around future supply chains mean investors have turned their attention to commodities.
While energy prices have been the immediate focus following developments in the Middle East, we believe the commodities sector could also benefit from powerful long-term structural trends. Increased infrastructure spending, the growth of AI, rising defence expenditure and the global energy transition are all driving demand for a wide range of critical resources.
Elsewhere, the NATO summit offered investors some reassurance. European leaders highlighted increased defence spending commitments, while US President Donald Trump adopted a notably more positive tone towards the alliance than in recent months, emphasising continued US support.
In the US, Federal Reserve chair Kevin Warsh also announced the leadership and objectives of five task forces to review areas including inflation, employment and monetary policy communication, as part of his plans to advance the conduct of monetary policy.
While geopolitical events have led to some short-term market swings, investors remain focused on the outlook for oil prices, inflation and interest rates over the coming months.
Markets, and especially equities, have also been supported by strong margin and earnings growth across many sectors and geographies over the past year or so and this is expected to continue with investors keenly looking out for the second quarter earnings updates, which will start this week.
In the UK, large and mid-cap stocks proved to be resilient and posted modest gains, buoyed by strong takeover activity.
