Market Update

Financial markets experienced significant volatility this week, navigating through geopolitical tensions and uncertainties surrounding interest rates. Stocks retreated from their highs as investors grappled with escalating tensions between Israel and Iran, fostering a cautious approach across the board.
The Middle East tensions reverberated throughout the markets, particularly impacting commodities like oil. Reports of explosions in an Iranian city on Friday, reportedly due to an Israeli attack, initially unsettled markets. However, Iran's measured response, indicating no immediate plans for retaliation, helped alleviate fears of immediate escalation, though some uncertainty lingers regarding the situation's true impact. Our investment management team remains vigilant, monitoring developments closely for potential risks and opportunities.
In the US, stocks pulled back as investors adopted a more cautious stance amid Middle East tensions and shifting interest rate expectations. Federal Reserve Chair Jay Powell and other Fed officials signaled a patient approach to interest rate adjustments, reflecting recent economic data that raised concerns about the timing of potential rate changes and influenced market sentiment.
Meanwhile, in the UK, retail sales remained flat in March, disappointing analysts who expected growth. However, there was a silver lining as the yearly growth rate increased by 0.8%, rebounding from a revised 0.3% decline in the previous month. This data painted a nuanced picture, revealing sectors experiencing setbacks alongside others showing resilience.
Despite these nuances, elevated oil prices and persistent inflationary pressures led financial markets to revise their expectations for the UK's first interest rate cut. Initially anticipated for June, this move is now expected to occur later in the year, possibly in autumn.
Amidst these market adjustments, Bank of England Governor Andrew Bailey struck an optimistic note at the International Monetary Fund's annual meeting. He highlighted signs of disinflation occurring alongside what he termed as "full employment," expressing confidence in the UK's economic progress.
Chinese equities experienced mixed performance, with the Shanghai Composite Index rising while the Hang Seng Index in Hong Kong declined due to geopolitical concerns. China's GDP surpassed expectations in the first quarter, signaling economic resilience, although indicators such as industrial production and retail sales presented a varied picture.
Looking ahead, market participants will closely monitor preliminary PMI data from key economies, including the UK, Europe, US, and Japan. Additionally, upcoming data releases on durable goods orders, GDP, and Core PCE inflation in the US will provide insights into the economy's resilience. Mega-cap technology firms such as Microsoft, Google, and Meta will report earnings next week, with investors keenly observing for any signs of weakness.