HL commentary as it happens

US core inflation (PCE) on Thursday (Consensus 3.2%)

US PCE (Personal Consumption Expenditure) prices this week will provide Kevin Warsh with food for thought for potential policy decisions later in the year. The headline year-on-year number, which includes energy costs, is forecast to have jumped from 2.8% in February to 3.5%. Core PCE, the Fed’s preferred measure of inflation, is also expected to have risen, albeit by a smaller margin of 0.2 percentage points to 3.2%. Anything materially higher than that could see hopes for rate cuts, currently tentatively pencilled in for September 2027, pushed out even further. However, it’s developments in the Gulf that will remain the bigger influence for now, with any progress likely to see bets firm again on an earlier resumption of the easing cycle.

S&P 500 futures little changed; this week’s Fed meeting in focus

S&P 500 futures are also trading flat this morning following Friday’s record close. A hold in Fed rates at 3.5%–3.75% is all but certain on Thursday, in what may be Jay Powell’s last meeting in the chair. The end of the criminal investigation by the Department of Justice into his renovation of the Fed HQ has seen Senator Thom Tillis, formerly seen as a stumbling block to Kevin Warsh’s appointment, come out in a supportive tone. The Senate Banking Committee is now expected to vote on Mr Warsh’s nomination on Wednesday.

Brent crude rises to around $107 per barrel

Lack of progress in Pakistan has seen Brent crude oil prices climb further to around $107 after adding 17% last week. President Trump participated in a call with Keir Starmer just hours after shots were fired at the White House Correspondents’ Dinner. The Prime Minister stressed that Britain does not support the US blockade and that naval efforts are focused on opening the Strait of Hormuz. With little in the way of a firm timeline for the resumption of unrestricted shipping, a key piece of the oil price puzzle.

Bank of England meets on Thursday, rates expected to hold at 3.75%

The Bank of England is one of several central banks setting rates this week. Given the uncertainty generated by the Middle East conflict, no change looks to be the order of the day, and the BoE is no exception, with markets expecting a hold at 3.75%. UK economic activity has been resilient so far, but much of this could be due to demand being pulled forward, and a slowdown is widely anticipated. Investors will be looking into the tea leaves of the meeting minutes for clues as to whether supporting growth or stemming inflation will be the priority later in the year.

FTSE 100 opens flat after US no-show in Pakistan

The FTSE 100 is down a touch this Monday morning following the lack of dialogue at this weekend’s proposed negotiations between Iran and the US, after President Trump instructed his delegates to stay at home. It may be that hopes of a diplomatic breakthrough were pretty faint to start with, and markets are now in wait-and-see territory ahead of a heavy week of earnings and economic touchpoints.

UK retail sales surprise, interest rate decision looms

UK retail sales surprised to the upside in March, with volumes rising 0.7% month-on-month, well ahead of expectations, leaving growth at a solid 1.6% over the first quarter. Much of the strength was driven by a sharp rebound in fuel sales, alongside a lift from warmer weather and seasonal spending, but the underlying picture looks less convincing. Consumer confidence has already started to roll over and, with inflation and unemployment expected to rise from here, the risk is that this strength proves short-lived, with growth likely to stall in the coming months. That backdrop should keep the Bank of England cautious next week, and we expect rates to remain at 3.75%, but the messaging is likely to stay cautious as policymakers remain wary of lingering inflation pressures and the risk of second-round effects.

Mixed outlook for global equities

Equity markets are sending mixed signals this morning, with UK markets opening lower while US futures edge higher as investors weigh fragile geopolitical progress against still-elevated energy risks. A three-week extension to the Israel-Lebanon ceasefire is offering some support to sentiment, but optimism remains cautious amid ongoing naval tensions and an effective blockade of the Strait of Hormuz. Oil prices remain firmly elevated, hovering around $100 and above in some cases, as disruption to this key shipping route continues to raise concerns about global supply and inflation. With geopolitical headlines still driving volatility - including President Trump’s order for the US Navy to target vessels laying mines in the region - markets look set to stay reactive.

US stock futures dip – initial jobless claims numbers later today

US Stock futures are also down today, with shares likely to give back some of this week’s gains when the opening bell rings. Weekly initial jobless claims numbers are out later today. So far through the conflict, the American labour market has proved resilient, which has contributed to rate-cut expectations moving out to at least the end of the year. Consensus forecasts are for a small rise in claimants from last week’s 207k to 212k, which is still well below the long-term average.

Brent crude above $103 per barrel as Iran tightens grip on key waterway

Brent Crude has risen every day this week and now sits at over $103 per barrel. Shipping in the Gulf remains severely disrupted, with the US intercepting at least three Iranian tankers and Iran restricting nearly all international traffic through the Strait of Hormuz. Washington warned that it could take up to six months to clear the waterway of mines.

Losses extended after the UK flash PMI release

The S&P Flash UK PMI for April showed an upturn in both services activity, which reached a two-month high of 52.0, and manufacturing, which was the strongest print in 47 months at 53.6. But there’s a major caveat. Much of this increased momentum comes from a dash to lock in purchases, on fears of price rises and supply chain disruption from the war. An underlying decline in business confidence and a weak outlook for the labour market tallies with our view that Bank of England lending rates are likely to hold steady until firm progress towards the end of the Iran war is made. The FTSE 100 is down circa 50 points further following the release.

UK inflation increased to 3.3% as the impact of the Middle East conflict flowed through to fuel prices

UK inflation increased to 3.3% as the impact of the Middle East conflict flowed through to fuel prices. This increased from 3% the previous month and was in line with analyst expectations.

While the increase in prices will be felt keenly at the petrol pump, it is highly unlikely a single inflation print will be enough to sway policy makers into moving the Bank of England base rate next week – though market watchers will be eagle eyed to see the vote split, as members of the MPC will likely be divided.

Inflation is likely to remain elevated in April too, and markets are now pricing in one rate rise later this year. But our house view is that rates are held through the conflict – returning to the expected rate cutting cycle later than forecast just a couple of months ago, but on path to neutral next year.

The pound didn’t move on the news, such was the increase expected, and it is unlikely to move UK markets when London opens this morning. But that doesn’t mean increased inflation will be ignored forever. Warnings in the recent days have come from the International Monetary Fund and the EY Item Club – specifically calling out the UK’s specific vulnerability to the impact of the war due to our reliance on Middle Eastern energy, global supply chains – and starting point of already anaemic growth compared to other G7 nations.

President Trump extended the ceasefire overnight, but Asia markets are not optimistic

Overnight, the US President announced that he would be extending the ceasefire with Iran, which was due to conclude yesterday. The news sent US futures higher across both the S&P 500 and the NASDAQ tech index, and the oil price fell slightly too. But the ceasefire extension last night has not done enough to entirely quell markets this morning, with mixed reaction on the board. Markets will be balancing the positive news of a continued ceasefire with the other news flow – peace talks are not progressing, and the Strait of Hormuz remains closed. Bloomberg calculates that 100 fewer ships a day are getting through the Strait, compared to pre-war volumes.