HL commentary as it happens

Gold set for a flat week as it loses some shine

Gold has slipped out of the spotlight since topping $5,000, with prices settling into a more benign range around $4,500-$4,800 in recent weeks. Conflicting signals around US-Iran peace talks are keeping investors cautious, particularly with Iran’s uranium stockpile still a major sticking point and oil prices sensitive to any shift in tone. That uncertainty would normally support demand for perceived safe havens, but sticky inflation risks and the prospect of interest rates staying higher for longer are keeping the gold trade relatively subdued for now.

Fresh data paints a bleak picture for UK public finances

The UK consumer is still looking fragile, even if confidence has ticked up from very low levels. GfK’s Consumer Confidence Index improved from -25 to -23 in May, better than expected, but the details were less comforting, with savings intentions dropping sharply and big-ticket purchase plans weakening again as households continue to feel the pressure from higher living costs. That caution was echoed in April’s retail sales, where volumes fell 1.3%, more than reversing March’s gain, with food the only major category to grow and fuel sales hit particularly hard as higher prices encouraged motorists to cut back on journeys and delay filling up. Add in a larger-than-expected borrowing figure, and the picture is one of weak growth, stretched household budgets and public finances that leave little room for easy fixes.

Equity markets tick cautiously higher

Global equity markets are heading into Friday on a cautiously brighter footing, with the FTSE 100 opening up and US futures looking broadly flat after Wall Street enjoyed a late flurry last night. Hopes that a deal between the US and Iran might be edging closer have helped steady nerves, but the details remain murky. President Trump has said the US will ultimately recover Iran’s enriched uranium stockpile, while fresh reports suggest Tehran may be unwilling to send that material abroad, a major sticking point in any agreement. Oil prices have also moved higher again as investors weigh the risk that talks drag on or fall apart. The honest answer is that nobody really knows where these negotiations are heading, but for now, markets are doing what they often do when a potential geopolitical off-ramp appears - tentatively moving as if the good news could be around the corner.

Brent Crude flat at $105 per barrel

Brent Crude prices showed early signs of a bounce after yesterday’s 6% decline but have now slipped to just under $105 per barrel. That’s been driven by signs of a diplomatic thaw between Washington and Tehran, but we’ve been here before and until traffic through the Strait of Hormuz returns to normal, oil price volatility is likely to remain the norm.

What lower than expected inflation means for retirees

The path for inflation looks uncertain and while we’ve seen a dip this month, there’s no telling what the future might hold. This can have huge impacts on pensioner budgets. State pensions are increased every year in line with the triple lock and final salary pensions also increase every year, but for those taking an income from a defined contribution pension managing inflation longer term is a key factor.

UK inflation undershoots forecasts 

UK inflation fell more than expected to 2.8% in April, below forecasts of 3%. Some temporary factors helped pull the number down – including changes to the Ofgem price cap and the timing of Easter. Even so, combined with a softening labour market, this gives the Bank of England a bit more breathing space.

It’s worth remembering that before the escalation in tensions between the US, Iran and Israel, investors had been expecting two rate cuts this year. Markets are now leaning towards the possibility of one or two rises instead. However, Bank of England Deputy Governor Sarah Breeden struck a more measured tone in the Financial Times this week, emphasising that the Bank’s role is to create a “stable environment” rather than act in a “trigger-happy” way. As she put it: “We don’t need to rush… we’re in a good place to be able to watch what’s happening in the economy.”

Any progress towards a Middle East deal will be critical in easing price pressures. These pressures are already having severe consequences for poorer nations, with reports of shortages and unrest from Kenya to Malawi. Gulf states, along with China and India, are increasing pressure on the US to help broker a resolution. At the same time, there are signs that some countries are becoming more willing to test the situation. A South Korean oil tanker, The Universal Winner, is currently attempting to transit the Strait carrying Kuwaiti oil, following two Chinese vessels that are believed to have already made the journey.

Oil prices ease a touch as US holds off on fresh attacks

Oil prices have eased a touch this morning, with Brent crude slipping back to around $110 a barrel after President Trump held off on a planned strike on Iran. That pause has given markets a reason to breathe, raising hopes that talks can restart after Saudi Arabia, Qatar and the UAE reportedly urged the US to give diplomacy more time. There are still big hurdles to clear, not least Iran’s nuclear programme and disruption around the Strait of Hormuz, but even a small step away from escalation matters when energy prices have been one of the biggest worries for investors.

Weak UK jobs data gives hope that the BOE can hold rather than hike

The latest UK jobs data puts a softer labour market back at the centre of the rates debate, and may help take some heat out of the recent rise in gilt yields. Payroll employment fell sharply in April, while vacancies and claimant numbers also point to a hiring backdrop that has weakened since the Iran war began. The important point for markets is that businesses appear to be responding to higher costs by cutting headcount, not by pushing wages materially higher to compensate workers. That should help keep the coming inflation spike contained to a short-term energy shock rather than the start of a wage-price spiral, giving the Bank of England a little more room to sit tight rather than rush into further rate hikes.

Mixed start for equity markets, UK set for positive open

Global equity markets are looking positive this morning, with the FTSE 100 building on yesterday’s strong showing as oil prices ease back from recent highs. President Trump’s decision to hold off on a fresh round of attacks on Iran has raised hopes that a deal may be close, helping ease some of the immediate heat in oil markets. But even if tensions cool from here, supply will not ramp back up overnight, leaving investors facing the prospect of elevated oil prices for a while yet. That could make for an uncomfortable few months, with higher energy costs feeding through to businesses and consumers.