The war in Iran is entering its twelfth week and, with no end in sight to negotiations, its impact on the real economy – specifically on inflation and growth – is raising increasing concerns.
However, the dark clouds hovering over the economy have not yet affected the performance of global stock markets. After the initial shock, they largely ignored the geopolitical issues in the Middle East, with artificial intelligence (AI) currently dominating the landscape, especially on the New York Stock Exchange.
A look at market perspectives in the coming days:
1/ CHALLENGES AHEAD American President Donald Trump concluded a two-day summit in Beijing with Chinese President Xi Jinping on Friday, which an analyst suggests the markets would find “strategically reassuring, but disappointing in substance,” with few concrete results.
Finance ministers and central bank governors from the Group of Seven (G7) countries will also gather in Paris on Monday and Tuesday with a broad agenda covering topics from the Iran impasse to securing critical mineral supply chains, oil prices, and the recent volatility in the global bond market.
In the absence of diplomatic progress, Brent crude oil prices remain well above $100 dollars a barrel, and the risk of negative economic repercussions is increasing day by day.
With challenges mounting, bond markets from the UK to Japan and the US are shaken by various factors including rising inflation indicators, political instability, and a radical shift in investor expectations regarding interest rate developments.
2/ AI TO RETAIL The strong first-quarter results season for American companies will wrap up next week with two heavyweights – semiconductor giant Nvidia and global retail leader Walmart.
Nvidia, considered a bellwether for the sector driving the stock rally, will publish their quarterly results on Wednesday at a time when enthusiasm for AI has boosted a wide range of semiconductor sector stocks.
The results of Walmart and other retailers releasing their results in the coming days will also be scrutinized by investors looking for signs that Middle East war-induced inflation may impact consumer spending. According to LSEG IBES, S&P 500 company profits are expected to have increased by over 28% in the first quarter compared to the same period last year.
3/ FOCUS ON DOWNING STREET Data on UK labor market and inflation, due out on Tuesday and Wednesday respectively, may not be well received by policymakers and monetary officials. However, the market will be closely watching the ongoing crisis at the head of the British government following recent upheavals in government bonds.
While the impact of the Iran war on energy prices wreaks havoc on global bond markets, internal political uncertainty in the UK only adds to the situation, fueling concerns about the fragility of British finances.
The significant rise in UK state financing costs this week, with 10-year government bond yields reaching their highest level since July 2008, is evidence of this challenge.
If Wednesday’s inflation figures show further progress and markets anticipate a further tightening of Bank of England (BoE) monetary policy this year, there could be an increase in Gilt bond sales.
4/ PERFORMANCE GAP Regardless of Nvidia’s results next week, investors will be keen to see whether they contribute to widening or narrowing the growing performance gap between US and European stocks.
Global energy supply disruptions are hitting Europe harder due to its greater reliance on imports compared to the US. Strong results from major American tech companies and the increasing weakening of European consumption further accentuate the performance gap.
The S&P 500 has risen by 8.8% since the beginning of the year, compared to 3.3% for the STOXX 600 index. The contrast is even more striking since the end of the Iran war in late February: the S&P 500 gained 8.3% in March and April, while the STOXX fell by 3%.
5/ OIL COSTS Japanese GDP figures for the first quarter, due out on Tuesday, are expected to give an insight into the impact of rising energy prices on an economy heavily reliant on oil imports.
Officials will closely monitor this, trying to find a balance between growing inflationary pressures and the risks of growth slowdown. GDP figures will be followed by external trade and inflation data, which could strengthen arguments for a future rate hike by the Bank of Japan (BoJ).
Elsewhere in Asia, property price and retail sales data in China expected on Monday. The world’s second-largest economy continues to face challenges in its property market and domestic consumption, even though overall growth momentum shows signs of resilience.
Context: This article discusses the impact of the ongoing war in Iran on the global economy and financial markets, as well as key upcoming events and developments across various sectors.
Fact Check: This article provides a detailed overview of market perspectives, economic challenges, and geopolitical issues affecting different regions.
