Matt Britzman, senior equity analyst, Hargreaves Lansdown, shares a market report, as global markets rally on Iran deal.
Global equity markets are starting the week firmly on the front foot, with futures pointing to positive opens across the board after President Trump announced that a deal with Iran had been reached. The move has given investors a clear reason to dial back some of the geopolitical risk premium that has hung over markets, especially as the Strait of Hormuz is expected to reopen and oil prices move sharply lower.
Energy prices have been one of the clearest transmission channels from Middle East tensions into inflation, bond yields and equity sentiment, and there is likely to be a concerted effort to get prices down even further once this deal is finalised. There are still details to be ironed out before markets can fully trust the agreement, but for now the direction of travel is clear: lower oil, calmer nerves and a renewed appetite for risk.
Oil prices have taken another leg lower, but this hasn’t come completely out of the blue. Oil has been sliding for much of the past month, a sign that markets had already started to price in a decent chance of a breakthrough between the US and Iran before President Trump’s latest announcement. The confirmation of a deal has still added fresh downward pressure, with traders now looking for evidence that the Strait of Hormuz reopens smoothly and energy flows return to something closer to normal.
Interest rates are now back in focus as lower oil prices give central banks a little more breathing room, but not enough to change the picture overnight. Markets are currently pricing in something close to a coin toss on a US rate hike by year-end, while the UK looks more firmly tilted toward a move higher, likely toward the back end of the year if the markets are to be believed.
That reflects the balancing act on both sides of the Atlantic: weaker energy prices help the inflation story, but policymakers will still want evidence that the shock has not worked its way into wages, prices and broader inflation.
This week is a big one for macro watchers, with new Fed Chair Kevin Warsh’s first meeting on Wednesday and the Bank of England expected to hold rates steady on Thursday. We already know that Warsh wants to rethink how the Fed communicates, with the future of dot plots and heavy forward guidance likely to come under scrutiny, but markets will be more focused on his read of inflation and jobs.
Any suggestion that war-driven inflation is transitory could help calm rate expectations, though investors will naturally remain cautious about any transitory comments given how wrong that narrative turned out to be during the Covid saga.
Earnings are relatively light this week, but Thursday brings two UK consumer bellwethers worth watching. Whitbread’s update will test whether Premier Inn can keep pushing forward despite UK cost inflation and a potential wobble in international travel demand, while Germany’s improving momentum still needs to translate into more meaningful profit contribution.
Tesco should offer a cleaner read on the UK consumer, with sales likely to remain in growth mode, but the focus will be on whether oil-led pressure on household budgets is accelerating downtrading and whether its scale can keep margins and full-year profit guidance on track.”
