The Week that Was

Global equity markets trended lower last week as an escalation of the conflict in Iran and mixed macro data weighed on sentiment. The S&P 500 fell 1.9% and moved into oversold territory, with Energy and Financials the only sectors in the green, with the latter benefiting as the Fed unveiled plans to relax banking capital rules. Energy was also the stand-out performer as European equities closed-down 3.8% with Brent moving 8.8% higher to $112 a barrel. Despite the strength in oil markets, Global Commodities fell 0.6% as precious metals softened with Gold seeing its worst week in forty years (-11%). Global Bonds also moved modestly lower as both the Fed and ECB grew more hawkish given the potential impact of the war on price levels.

The Week ahead

Markets in the Asia-Pacific region trended lower this morning as the war in Iran continues to weigh heavily on investor sentiment. Brent Crude moved 1.0% higher, to trade at $113 a barrel as escalatory rhetoric over the weekend including a 48-hour ultimatum for Iran to open the Strait of Hormuz, by President Trump, more than offset a commitment by G7 Foreign Ministers to take the necessary steps to maintain the stability of global energy prices. The USD strengthened modestly vs the Euro overnight whilst Gold continued to weaken down 8.2% and now trading close to $4,100 an ounce.

Developments in Iran will continue to be the key driver of market sentiment in the week ahead. The short-term spike in oil prices has driven markets to price in two hikes by the ECB this year and no cuts by the Fed. This outlook appears overly pessimistic given medium-term inflation expectations have only moved slightly whilst Brent Oil futures continue to point to prices returning to $85 a barrel by Q4 of this year. Furthermore, President Trump is now openly considering winding down the war with troop deployment likely aimed at seizing Kharg Island in order to apply greater pressure on Iran to loosen the Strait of Hormuz. Whilst the current environment is clearly unsettling for investors, the market impact of similar geopolitical tensions historically has been short lived. A de-escalation should provide plenty of opportunities for investors in the weeks and months ahead particularly given equity market valuations have compressed significantly against the backdrop of accelerating earnings growth.

There will also be ample macro and corporate updates for investors to focus on in the week ahead. Eurozone Consumer Confidence is expected to turn lower for the first time in three months as the war in Iran weighs on sentiment. Industrial activity for the month of March is also expected to decline modestly but very much remain in expansionary territory. On Thursday US Initial Weekly Jobless Claims should provide further evidence that the US labour market is in a no-hire, no-fire phase. The earnings calendar is light for this week with only retailer Next, Irish mining company Kenmare Resources, electric vehicle maker BYD and Nike reporting numbers. With respect to the latter, investors will be looking for greater comfort on the medium-term earnings outlook given concerns of weakness in China and wholesale channel stuffing in the US.

This is an extract from the Weekly Markets Report by Cantor Fitzgerald Ireland. For more detail on individual securities, or to discuss how we can support your investment needs, please get in touch.

Written by John Mullane, CIO, Cantor Fitzgerald Ireland