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Astute Market Overview - 17th April 2024

Hello, and welcome the latest Astute Market Overview.

Markets dipped in the period since our last overview, blowing off some steam following strong performance since October. Today, we want to discuss some of the drivers of market return in April so far, including inflation and interest rate expectations, and touch on the escalation in the Middle East.

Over the weekend, there was an escalation concerning the situation in the Middle East, as Iran launched a drone and missile attack against Israel. No nation wishes for further escalation, and allies on both sides have called for restraint.

Whilst it is difficult to remove the human cost of ongoing events in the region, we trust you will understand that, for the purpose of this video, we’ll turn to the broader impacts on the global economy.

Following the news over the weekend, markets started the week in the red. One of the significant risks that concern markets, would be an increase in the oil price, potentially due to heightened restrictions on Iranian oil exports. However, it isn’t clear how much leverage the west would have in order to enforce these sanctions on other countries, meaning that Iran could potentially still export to, say China, limiting the impact on global oil supply.

The US is a huge oil producer (currently producing over 13,315,000 barrels per day) and can release a significant amount from its oil reserves if needed. This will have a dampening impact on the increase in oil price if supply from the Middle East was choked.

There has been little reaction in the price of Brent Crude Oil this week, potentially as some risks are already priced-in (the oil price has been ticking up since mid-December), and the attack was thwarted.

Central banks will be cognisant of the threat of retaliation from Israel, but as things currently stand, the situation is unlikely to have much of an impact on their monetary policy decisions.

In other news, expectations for inflation and interest rates have been a key driver of market performance since our last overview.

At 3.5%, March’s US inflation came in both above forecasts and above the previous month (in fact, the highest since September). This shifted the outlook for US interest rate cuts, and an interest rate cut in the next couple of months is now looking to be off the cards.

Turning to the UK, earlier this year it was looking likely that we could see a summer symphony of interest rate cuts, with the Bank of England following the Federal Reserve in the US, avoiding the risk of devaluing sterling and importing inflation.

However, on balance, the Bank of England may have to go first. UK CPI inflation released this morning revealed that inflation, at 3.2%, continued to fall towards 2% targets. It’s unlikely that we will see a move at their next monetary policy committee meeting on 9th May, but, data allowing, we may see an interest rate cut in June.

Turning to the economy. We’ve previously talked about the shallow, technical recession that we entered in 2023. Whilst we have a few weeks to wait to reveal how the economy fared during the first quarter of this year – to confirm whether the recession ended on New Year’s Day or not – data for February revealed that GDP increased by 0.1% month on month in February, and increased 0.3% month on month in January, suggesting that the recession may be over.

See you next time.

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