HL commentary as it happens

Sign of cracks in US labour market compound concerns

Friday’s surprise drop of 92,000 in US non-farm payrolls was another fly in the ointment. Ordinarily signs of a slowing labour market can provide support to more doveish member of the Fed but recent events have put inflation worries back on the table with markets now not pricing in a further rate cut till September at the earliest. That’s also been reflected in a rise in treasury yields following the initial strikes on Iran with 10-year yields rising another 6 basis points today to 4.2%. The US currency has also responded with the dollar having recouped nearly all of its earlier year-to-date losses.

Oil prices race past $100 as Iran’s neighbours turn off the taps

At the time of writing, some of the froth had come off the top with Brent Crude trading at around $108 per barrel down from earlier highs of $116. Oversupply in the global oil market has been a dominant theme in recent months, but a 70% production cut at Iraq’s three main oilfields, and a sharp fall in output from Kuwait could be followed by similar moves in the UAE and Saudia Arabia as storage reaches capacity. Until the Strait of Hormuz can be securely re-opened producers will be reticent to turn the taps back on, and even if that decision is made, there can be a significant lag until oil and gas wells return to full flow.

Stocks extend last week’s losses

Save for the Vix which measures volatility in the US market, investors in global stock markets are staring at red screens this morning after a weekend of intense hostilities in the middle east. By virtue of their time zone, Asian markets were the first to take a step down in reaction to Monday morning’s oil price spike which at one point had climbed over 20%. Donald Trump’s been clear around his intention to drive regime change in Iran, and also that the succession of Ali Khamenei by his son Motjaba would be unacceptable. Motjaba Khamenei’s appointment yesterday as the country’s supreme leader will do little to reassure markets that an end to the violence is in sight.

Chip stocks could face new export rules

Chip stocks could face a fresh bout of policy uncertainty after reports that the US is toying with the idea of new export controls on advanced AI chips - an unwelcome twist for the sector, especially after this administration scrapped Biden-era “AI diffusion” rules last year. The proposed framework could require government approval for shipments of AI chips to countries outside the US, effectively giving Washington a gatekeeper role in global semiconductor sales. Even so, this isn’t unfamiliar territory for chipmakers, who have navigated multiple rounds of export restrictions in recent years - meaning while it may add some administrative friction, it’s unlikely to materially dent financials if it comes to pass.

Gold on track for weekly decline as inflation fears take over

Gold is trading up to around $5,110 per ounce this morning but is still on track for its first weekly decline in five weeks - something that may come as a surprise given the ongoing geopolitical tensions. While the Middle East conflict has boosted demand for safe-haven assets, the resulting surge in oil prices has stoked fresh inflation concerns, prompting traders to dial back expectations for rate cuts. Markets are now pricing in just one US cut this year, down from two earlier in the week, after surging oil prices and a run of solid US data pointed to continued economic resilience. Rate expectations often don’t get the attention they deserve, but they’ve quietly been one of the biggest forces at play this week.

Selling pressure eases as oil prices slow their ascent

Global markets are looking more positive today, if only a touch, largely driven by a let-up in oil prices after a volatile week for energy markets. Oil slipped back this morning, on the back of a five-day rally as the Trump administration signalled it’s considering several steps to tackle the recent surge in oil and gas prices. Potential measures under discussion include releasing crude from US emergency reserves, granting waivers on fuel-blending requirements, and even allowing the US Treasury to trade oil futures. The move has helped calm nerves across markets this morning, with investors encouraged that policymakers are actively looking to contain the economic fallout from higher energy costs.

That said, it’s worth keeping the broader move in perspective - oil has still jumped nearly 20% this week, putting it on track for its biggest weekly advance since February 2022. Higher prices tend to feed through to consumers almost immediately via rising petrol costs, which in turn risks reigniting inflation pressures just as central banks were hoping for some relief. Still, stock markets have been reasonably robust considering the events, a signal that investors are siding with the transitory narrative for now, a view we share.

Oil prices up nearly 3% so far today

Brent Crude prices are up around 3% to around $84 per barrel, driven by continuing disruption in the Persian Gulf, and China’s order to suspend exports of refined products such as diesel and gasoline. However, a higher than expected 3.5 million barrel increase in US crude inventories underlines the potential for prices to quickly pull back if stability returns to the Middle East.

US stock futures down

After a positive day yesterday, with both S&P 500 and NASDAQ markets up, falling US stock futures suggest that yesterday’s rebound may be short-lived. Weekly jobs data will deliver its usual double-edged message today. Initial jobless claims are expected to rise slightly to 215,000 this week, but that’s still lower than recent averages. On the one hand, that shows resilience in the economy, but with inflationary concerns being stoked by higher oil prices, the case for imminent reductions in Fed rates is far from cut and dry.

Gold continues to recover

Gold prices continue to recover from losses earlier in the week. However, there is likely to be further volatility ahead. The key driver for now is interest rate expectations with markets pushing their bets for a further rate cut in the US all the way out to September.

What Spring Statement?

With oil prices dominating global market moves, it was easy to miss Chancellor Rachel Reeves’ Spring Statement yesterday.

Against a troubled backdrop, the Chancellor was keen to celebrate her successes; the independent Office of Budget Responsibility’s progress report that credited the Labour Party as delivering lower borrowing, higher growth economic growth for 2027 and 2028, and lower inflation for the UK. Reeves glossed over the growth downgrade for 2026 – lowered to 1.1% from 1.4%.

On that reasonably positive data set, you’d have expected gilt yields to dip, but markets were listening less to what is happening in the House of Commons and more on the war in the Middle East. Expectations that higher oil prices will flow through to re-inflation have sent yields higher, with the 10-year gilt yield reaching 4.53% in intraday trading. The market slashed expectations for an interest rate cut later this month, and some forecasters adjusted their outlook to just one cut of 25bp through 2026. We think is overly pessimistic but understand investors’ caution.

Troubled stock markets sceptical of Trump’s Hormuz promise

Escalating conflict in the Middle East saw market losses across the globe yesterday – and early trading suggests a mixed picture today.

Oil prices reached just shy of $85 a barrel yesterday as trade through the Strait of Hormuz – through which 20% of global flow moves daily – halted entirely. Gas prices also rose sharply. Iraq announced plans to pause production due to the disruption. Equity and bond markets priced in the impact of a potential supply shock, anticipated to hike energy costs, stoke inflation and force higher interest rate policy. Gold fell 4% as higher Treasury yields offered haven seekers an alternative home.

Europe felt the brunt of investor concern, with Germany’s DAX down 3.44%, France’s CAC 40 falling 3.46% and the FTSE 100 fell 2.75%. The US began trading with similar negativity but markets were granted reprieve in the form of President Donald Trump who pledged insurance guarantees and escorts for tankers using Hormuz. The S&P 500 therefore closed down a more muted 0.94% and NASDAQ index fell just 1.02%. The brent crude oil price fell back to $80 on the news.

Today’s trading in Asia has not picked up the optimistic baton – with markets down across the region. Japan’s Nikkei is down 3.73% at the time of writing, while China’s Shanghai Composite is down 1.29% and Hong Kong’s Hang Seng has fallen 2.78%. South Korea’s KOSPI index is in technical correction territory, down 12%.

Losses are driven by AI-names in a reversal of market trends that have dominated in recent years, and US dollar strength has also weighed.

But futures for Europe suggest a more robust open – the FTSE 100 is currently on track to open flat, and futures for France, Italy and Germany are edging into positive territory. The old-economy nature of the region, a headwind in recent years, is proving a boon. This underlines the importance of portfolio diversification in times of market stress.

What next?

The Strait of Hormuz is the focus of markets. Some Gulf states do have other trade routes available, using Red Sea pipelines, and the US – one of the world’s biggest oil producers – is far removed from the conflict, at least geographically.

A number of oil exporters including Saudi Arabia, and indeed importers such as China, also have reserves outside of the conflict zone which can provide some buffer, but are finite. Renewable energy sources will also help at the margin. But Hormuz resuming usual trade is essential for asset price normalisation.

Some investors are questioning whether this triggers a financial crisis; a toxic combination of asset prices collapsing coupled with recession. Fear is understandable – the events are alarming and upsetting, and from a markets point of view, the VIX volatility index hit 28 yesterday, above the 24 level which piques our interest. But it is important to stress that a prolonged bear market is not our base case scenario. The US military is a global strength, and the President has made it clear restoring global energy supply is a priority.

The downward pressure on stocks is likely to continue until this crucial trade route is made safe. Once secured however, we expect markets to return to optimism – with the volatility we have come to anticipate as the norm under a Trump presidency. The most sensible investment strategy is therefore to sit tight. Well diversified portfolios, with exposure to different asset classes, geographies and styles will be most robust against uncertainty.