A new month has begun, and already watchers of UK markets and politics have seen another ‘Peter Mandelson day’ come and go.
The semi-regular releases of fresh revelations seem almost on the verge of becoming a national tradition. Always a rich source of fodder for the commentariat and fresh speculation about the fate of the prime minister, they always seems to drown out much else. Well, we’re not going to let that happen here – because last week was quite an interesting one for markets and how they are suggesting investors see the road ahead.
Market participants seemed to seize on the latest headlines about America’s negotiations with Iran to decide that the war might once again be a smaller problem than once feared.
The positive effects rippled outward. The oil price fell by 11% last week, which in turn saw inflation expectations ease and the cost of government borrowing fall. Stock markets also continued to push higher, with the US market closing Friday at a record high.
The resilience of the US economy helped too. Perhaps surprisingly, the trend in monthly jobs data has actually turned upwards in recent months, while the manufacturing sector also appears to be gaining steam rather than losing it.
The cloud accompanying these silver linings continues, of course, to be inflation. April’s US inflation figure was the highest since May 2023. But even here there is good news. Key measures which show investors’ expectations for inflation have come down considerably from their war-time highs, while the ‘trimmed mean’ measure of inflation – which strips out the biggest outlying items – looks under much better control than the headline figure. If the oil price keeps falling, the inflation worry should keep easing with it.
Not that that is settled, of course. Fresh reports of Iranian strikes on US targets, and vice versa, punctured some of the recent optimism. Meanwhile, Israel may still expand its offensive on the Iran-allied Hezbollah group in Lebanon – a reminder that the mood in the region can still turn in an afternoon. For now though, investors seem steadily more confident that the issues surrounding the Middle East tensions can be overcome.
And in the meantime, Westminster politics will doubtless offer plenty to keep us all amused. Until Makerfield…
