HL commentary as it happens

US CPI expected to accelerate

The strong US economy and the inflationary impact of the Middle East crisis have pushed interest-rate cut expectations out to at least the end of this year. Today’s key data point is the US Consumer Price Index print for April, which is expected to show core inflation accelerating to 2.7% from 2.6% in March, and a bigger jump in headline prices from 3.3% to 3.7%, which includes energy costs. The risks are skewed to a hotter-than-expected increase in prices, and while headline numbers may not move the dial, a higher-than-forecast core number could at least put a temporary brake on market optimism.

S&P 500 & NASDAQ set to pull back from record highs

US stock futures are down this morning after both the S&P 500 and NASDAQ Composite hit fresh highs. Corporate strength has outweighed geopolitical tensions, with the S&P 500 on track to deliver a 27% increase in earnings per share over the first quarter, which, according to FactSet, would be the fastest growth since the end of 2021.

Brent crude nudges $105

Brent crude prices remain stubbornly high at close to $105 per barrel. The closure of the Strait of Hormuz has moved the narrative firmly away from oversupply worries towards fears of a deficit. Saudi Aramco CEO Amin Nasser said the market has lost around 100 million barrels of output per week, and that even a few weeks of further disruption could significantly delay a return to market stability.

Barclaycard and BRC April data: Consumers feel the pinch

Cost pressures are contributing to downbeat consumer data for April, out today from Barclaycard and the British Retail Consortium. Barclaycard said card spending fell 0.1% year-on-year, the first decline since 2024. Staying at home is coming back in vogue, with digital content and subscription spending rising 9.2% - a sharp contrast to the 5.7% decline in travel, with airline spend down a further 8.3%. It’s in times like these that airline business model strengths and weaknesses become apparent. Among the UK-listed names, IAG stands out as a high-margin business, with a diverse route network and a sensible fuel-hedging strategy.

The British Retail Consortium April report showed a 3% decline in retail sales for April. However, the timing of Easter was a considerable drag. March and April combined make for a more meaningful comparison, with sales up 1.5%. The Easter shift was likely the key reason for a 2.5% decrease in food sales, but big-ticket items also fell, and consumer confidence remains fragile.

FTSE 100 expected to reverse Monday’s gains

The FTSE 100 opens down today against a backdrop of higher oil prices, and a seemingly unbreakable diplomatic deadlock between Tehran and Washington after President Trump warned that the ceasefire may be on “life support”. Back at home, rising government borrowing costs aren’t helping either, with Prime Minister Sir Keir Starmer’s leadership under increasing pressure. The potential for a fiscally looser successor may be weighing on rate expectations, but the inflationary influence of higher-for-longer oil prices is likely to be the bigger driver. With 10-year gilts now paying just over 5%, any movements in the yield will be closely monitored.

FTSE opens slightly up, all eyes on the gilt market today

The FTSE 100 is, as ever, a poor proxy for the UK domestic economy, as most of its constituents earn revenues overseas. It is in the gilt market and in the pound where UK political risk tends to show up most clearly. Any sign that markets are losing confidence in the government’s economic management may put upward pressure on borrowing costs and weigh on sterling. We will be watching this throughout the day.

Labour market cracks with the ITEM Club and REC both point to a softening jobs backdrop

Away from Westminster, two significant reports today added to a growing picture of a UK economy that is losing momentum. The ITEM Club pointed to weakness in manufacturing and construction, sectors squeezed by higher energy costs. This chimes with what housebuilders have been saying, several of whom have flagged margin pressure from higher input costs, as well as planning delays and affordability constraints, which are weighing on volumes. Meanwhile, the Recruitment and Employment Confederation’s latest survey showed more businesses opting for temporary rather than permanent hires. That is a telling signal. When companies are uncertain about the outlook, they avoid locking in fixed employment costs. It does not necessarily point to rising unemployment in the near term, but it does suggest that business confidence is weakening.

Starmer under pressure: his speech this morning is pivotal

It has been a bruising weekend for Keir Starmer. Local election results delivered a sharp message from voters on two fronts. Reform made inroads in traditional Labour heartlands across the north of England, where Brexit sentiment remains strong, while the Greens picked up seats in the south among voters frustrated by the pace of change on spending. In Wales, Labour lost its majority in the Senedd, and in Scotland, the SNP are the largest party for a fifth term, with John Swinney returning as First Minister. The Prime Minister heads into Monday morning with his authority shaken and a significant speech to deliver, which is expected to cover the UK’s relationship with the European Union.

US non-farm payrolls in focus (consensus: +62k)

US jobs data are the key economic numbers Wall Street will be watching later. Consensus expectations are for a 62k addition to non-farm payrolls and for unemployment to remain steady at 4.3%. With ADP private payrolls coming in better than expected, the numbers could come in a little stronger. That’s a pretty resilient outcome given the geopolitical backdrop. So far, AI is not proving to be the end of the jobs market as we know it, with skilled labour in particularly high demand. With inflationary concerns running high, a strong print could move expectations for rate cuts further out yet.

Oil price up again as tensions rise in the Strait of Hormuz

Further exchanges of fire in the Strait of Hormuz overnight have sent Brent Crude oil prices up around 1$ to $101 per barrel, with Tehran seemingly in no hurry to make a deal with President Trump. In time, bypasses such as the Israeli Land Bridge and Sharjah–Fujairah Energy Corridor could reduce reliance on this critical energy chokepoint, but none of these are going to be a quick or full fix.

Gilt yields in the spotlight after tough night for PM Kier Starmer

With company results thin on the ground, it’s the macro picture that’s likely to dominate today. 10-year gilt yields are up a couple of basis points to within touching distance of 5%. As the local election results roll in, it’s not looking good for Labour, and the potential for a leadership change is undermining confidence in the UK’s fiscal health. While political winds can change on a sixpence, the gilt yield is a decent proxy for risk-free returns, a key technical driver of share prices which, all other things being equal (they rarely are!), should move in the opposite direction of yields. If government borrowing costs rise further, expect more pressure on the London markets. Events in the Middle East are also weighing on sentiment this morning.

Global markets lean into Middle East optimism

Global markets are still pricing the glass as half full, with yesterday delivering another strong rally despite little tangible progress towards a lasting resolution in the Middle East. The FTSE 100 jumped more than 2%, helped by miners, banks and real estate names, with the 10-year Gilt yield retreating to below 5% as a lower oil price eased some inflationary fears. Futures point to a more measured open today for UK stock markets, with investors turning their attention to local elections, where expectations of a bruising result for Labour look firmly baked in. A poor showing would pile more pressure on Starmer, leaving investors to weigh whether political pressure starts to translate into a different fiscal direction for the UK.

Broad earnings strength drives US records

US futures point to a more muted open today, but the real story is in last night’s close, with the S&P 500 and Nasdaq both hitting fresh records as raw earnings power and hopes of Middle East de-escalation proved a powerful cocktail for equity markets. Profit growth this earnings season is running above 20% at the S&P 500 level for the 80% of companies having already reported. Strength has been broad, from the obvious AI-linked areas like energy, materials and industrials, through to consumer names, utilities and healthcare, which gives this rally a firmer foundation than one built on a handful of obvious AI names alone.