HL commentary as it happens

Interest rates held at 3.75%

As expected, the Bank of England (BoE) Monetary Policy Committee has held rates at 3.75%. The market had priced in a hold today, so reaction is muted. Committee members were unanimous with their cautious outlook in the face of the market uncertainty - with all members voting to hold rates. In the past few weeks, the market has gone from pricing in two cuts through 2026, to one rate hike, to one quarter point cut to, again today, an expectation that rates will rise later this year. These swings are understandable - the price of oil is dominating asset pricing and fear of an inflation spike is driving bond markets. However, we think these fears may be overblown. Comparisons with the interest rate hikes post Russia's invasion of Ukraine are not comparing apples with apples - rates are already elevated today, then they were at record lows, near 0%. As such, we think that while the conflict remains at elevated levels, the European Central Bank, BoE and Federal Reserve are likely to hold rates at current levels, but the downward trajectory will continue once the war is resolved.

The BoE Governor Andrew Bailey did leave the door open to raising rates on the outside chance the war causes prolonged and stubborn inflation in his statement, reminding consumers and corporates alike that the UK's inflation target is 2%.

US futures weak after Fed holds rates and raises inflation forecast

These latest energy price increases will compound inflationary concerns after the Federal Reserve held rates steady yesterday at 3.5%-3.75%. Beyond the impact of tariffs and the energy shock, Chair Jerome Powell also noted stubborn services inflation. The bank’s year-end core PCE inflation forecast was raised from 2.4% to 2.7%. Rate cuts are still being considered for later in the year, but markets are no longer pricing in a further cut in US headline rates this year.

US markets closed down yesterday evening and are now near six-month lows, with futures pointing to a weak open later today. Year to date, the tech-led NASDAQ has underperformed the wider index.

Oil and Gas prices spike again after attacks in Qatar and Iran

The most recent hostilities have sent Brent Crude prices up to around $114 per barrel, with European natural gas futures up around 25% to €68 per megawatt-hour. Donald Trump’s moves to reduce energy freight costs by temporarily lifting the Jones Act may take a little edge off these latest price increases, but it’s not a long-term fix.

FTSE 100 opens down

The FTSE 100 has opened down after overnight strikes on the world’s largest LNG facility in Qatar, and Iran’s South Pars gas field. In contrast to previous Middle East conflicts, the US is not drawing broad support from other Western nations, and calls by Oman’s foreign minister for Washington’s allies to help de-escalate the situation are well-founded. For now, the path back to the negotiating table looks far from clear, but as economic reality sets in, things could change. Any steps in this direction could provide welcome relief for stock markets.

US PPI, an inflation measure, is also expected at 1.30pm UK time

Economic news is the order of the day across the Pond as the we get both an inflation print and the US Federal Reserve’s Federal Open Market Committee concludes its March meeting. They may be meeting stateside, but whatever the Fed says today will have global implications.

The US Producer Price Index inflation report for February will be released today, but will not reflect elevated oil prices, so is expected to show month on month increase of 0.3%, in line with longer term trends. Data for the month of March will be more revealing, including recent oil and gas shocks.

An hour after the inflation print we’ll hear from the Fed, who we expect to hold rates today, as does the broader market, so the news is unlikely to move prices. What does have the potential for upset is what Chair Jerome Powell says at his penultimate press conference – how the vote was split and any commentary on the war, forward guidance implications. The markets have flipped from expecting two cuts this year pre-Iran conflict, to one hike after the escalations, to now one cut is the consensus view, later in the year.

The Fed will also share its Outlook-at-Risk report, published monthly, which gives details of risks to unemployment, inflation and economic growth. Expect oil prices to dominate.

Oil has edged down as Iraq agrees to new export route

While the war continues, markets and macro are pegged to the oil price. And so, with the value of black gold down slightly, so equities in Asia and European and US futures are up. It follows a positive session yesterday, in which the FTSE 100 rose slightly to 10,403.60, up 0.83% and the S&P 500 up 0.25% to 6,716.09.

The oil price has softened – though Brent still trades above $100 – thanks to two pieces of news; a select few tankers are moving through the key Strait of Hormuz and Iraq has agreed a pipeline deal to export oil via Turkey. A reminder that in normalised trade, 20% of daily oil and 25% of liquified gas flows through Hormuz; this activity is a fraction of that. But it does mark an improvement on last week, where the Strait was effectively shut. Iran is reportedly allowing only those tankers operated by countries considered neutral, or anti-US in this conflict, such as China.

While any relief rally is welcome, investors should be mindful that volatility is likely to continue over the next month, through extreme daily moves become less likely as markets look to longer-term indicators. Policy – both monetary and foreign – is key. Oil futures remain elevated compared to pre-conflict, with 6-month prices near $80. This is a key indicator of remaining risk to economic growth and consumer confidence.

Gold hovers around month lows as rate cut hopes fade

Gold edged higher to around $5,020 per ounce but is still hovering close to its lowest level in nearly a month, as investors weigh what the Middle East conflict could mean for inflation and interest rates. Elevated energy prices are keeping inflation worries alive, which in turn makes central banks less likely to rush into cutting rates. The Federal Reserve is expected to hold steady this week, with cuts still on the cards for later in the year. The UK rate outlook isn’t quite as attractive, with the Bank of England expected to hold rates steady before potential rate hikes in 2027.

Oil bounces back with $100 per barrel acting as an anchor for now

Oil prices have bounced back from yesterday’s drop as investors weigh the growing impact of Middle East tensions on global supply. Iran has stepped up attacks on regional energy infrastructure, while most countries have so far stopped short of backing US President Donald Trump’s push to protect shipping through the Strait of Hormuz. Still, it does look as if $100 per barrel is the anchor for now, with prices kept somewhat in check by hopes that the vital waterway could reopen after several tankers passed through safely over the weekend, and by reports of back-channel talks between the US and Iran.

US markets on track to hand back some of yesterday’s gains

US markets pushed higher overnight, but futures are pointing to a softer start this afternoon, with volatility still very much in the driver’s seat. Geopolitical tensions ramped up over the weekend as Trump looks to rally support for a coordinated plan to reopen the Strait of Hormuz, although there were tentative signs of de-escalation yesterday, with reports of direct US-Iran talks and oil settling just above $100 a barrel. But even if the Iran conflict comes to a swift resolution, ongoing concerns about stretched valuations and fresh warnings in private credit could keep US markets from breaking into a full-blown rally.

Gold falls below $5,000 per ounce

Overall, the war has seen yield curves steepen, which has taken the wind out of gold investors’ sails, and the precious metal dipped below $5,000 per ounce over the weekend before recovering some ground. Keep in mind, it’s still 67% higher on a one-year view, so some profit-taking is to be expected. However, even if central banks don’t produce any surprises this week, all asset classes are likely to prove sensitive to guidance and commentary around the path for rates later in the year.

Fed, BoE, ECB, BoJ to set rates this week

Later this week, central bank decisions will become a key focus for investors. The UK, US, Japan and Eurozone are all expected to leave rates on hold, with Australia being the notable exception, as strong consumer spending and inflation well above target are expected to see rate setters try to take a little steam out of the economy. Over the course of 2026, we expect further cuts by both the Bank of England and the Federal Reserve, but no reductions from the European Central Bank until at least next year. On the other hand, we’re expecting the Bank of Japan to raise rates, with the current interest rates well below the rate of inflation. However, if the current spike in oil prices persists, we may need to revise these views as policy makers grapple with the conflicting inflationary pressure and brakes on economic growth that come with higher energy costs.

FTSE 100 edges up

There’s an air of calm around London markets this morning. The FTSE 100 has posted a gain while ignoring cues from Asian indices, which saw widespread losses overnight despite better-than-expected data for industrial output and retail sales in China. But with Asian economies acutely reliant on oil imports, rising energy prices continue to dominate, with Brent Crude continuing its ascent to around $104 per barrel. So far, there’s been no commitment by the international community in response to Donald Trump’s appeal for a naval coalition to secure the Strait of Hormuz. However, the UK’s leading index is partially hedged due to its exposure to oil & gas producers and the defence industry. The heavy weighting from pharmaceutical companies provides a further defensive layer, and recent earnings from banks and financials, another key contributor to the index paint a picture of resilience.