Harold Wilson’s quip sixty years ago that “a week is a long time in politics” continues to resonate – and not just in politics!
In a busy week for data releases, we awoke on Sunday morning to the main news that the United States had bombed several strategic sites in Iran. With B2 stealth aircraft flying decoy missions and bombs known as ‘bunker busters’ being deployed, one could be excused for thinking this was all very Hollywood.
Of course, with a reality TV star in the White House, drama is never far away, and despite expectations that the Trump presidency would see less interventions outside of the US the TACO moniker that has been bestowed on President Trump is looking as out of date as a campaign promise.
Thus far this morning markets have remained calm, a small increase in the oil price although the usual safe haven gold has barely moved. All eyes remain on what Iran’s response will be with a particular focus on the strait of Hormuz through which one fifth of the world’s oil supply travels.
Iran has threatened to close the strait in the past which would have a significant knock-on effect to the price of oil. Shipping prices have almost doubled with a very large crude carrier, capable of transporting two million barrels of oil from the Gulf to China moving from $19,998 a day to $47,609 by Wednesday last week.
Turning back to last week, as mentioned earlier, a busy week for data releases, although first, central banks: The BOJ kicked the week off – holding at 0.5%, followed on Wednesday by the FED, who also held at 4.5%. Not to be outdone the Bank of England also held on Thursday whilst the Swiss National Bank closed the week with a 0.25% cut, with rates now sitting at 0%.
Retail sales in the US slipped back a touch further than expected – undoubtedly tariff related. Inflation in the UK came in a touch higher than expected at 3.4% whilst Europe led the pack, coming in just below 2% – exactly where the bank want it to be.
Looking at markets last week, in local currency, with the exception of Japan most slipped a touch. Europe and China were the weakest of the majors. European woes were focused on the aforementioned issues in the middle east, whilst concerns in China once again returned to the property market with new home prices falling the most in seven months. Used home prices also fell by 0.5% – the most in eight months.
The pound weakened against the dollar, which supported returns to UK investors with global stocks up 0.4%. However, the home market was weak with the FTSE 100 falling by 0.8% whilst the smaller company segment showed some welcome strength.
Considering all of the central bank action, fixed income markets were relatively calm with the main strength coming in inflation linked bonds in the US and UK.
Commentators have decried the end of US exceptionalism, with the decisive action over the weekend one could be forgiven for thinking that it was all talk. However, we must not forget that the two weeks that President Trump gave Iran turned out to be a week – and the two weeks until unilateral tariff letters are sent out is fast approaching. A week may well turn out to be a short time in politics, and markets.
Paul Surguy – Managing Director, Head of Investment Management & Proposition