Unease amid Middle East crisis, US inflation concerns and Mitie lifts profit outlook
Susannah Streeter, head of money and markets, Hargreaves Lansdown: “The week is starting on a fraught note, with unease still clouding sentiment. Investors are on alert for retaliatory action following Iran’s attack on Israel. Fears are brewing that a dangerous new episode of escalating conflict is about to roll. All eyes are on diplomatic efforts being made to diffuse the situation which have helped bring down a spike in oil prices.
The FTSE 100 has been on the back foot in early trade, retreating away from record levels which the index flirted with on Friday. Although defence company BAE Systems has gained fresh ground amid expectations of higher military spending, energy stocks are on the back foot, as oil prices have retreated a little. Concerns have also deepened about stubborn inflation in the United States, following a rebound in the headline CPI rate in March. There’s now a big rethink taking place about when the Fed will be confident enough to cut interest rates, with more hopes sliding away from a June date and September being increasingly pencilled in instead. US retail sales figures out later today will be watched closely for signs of continued consumer resilience.
The heighted tensions in the Middle East are not helping, given they’ve pushed up oil prices, with Brent tracking but still hovering close to $90 a barrel. Although the gains over the past month will only have a fractional impact on consumer prices, there is a risk crude costs could push even higher if a wider war breaks out in the region. But concerns about high interest rates lingering for longer in the US are for now conspiring to keep a lid on prices, given that a continuation of painful borrowing costs is expected to act as a drag on demand for energy. As geo-political risk appears to spread, gold continues to glimmer as a safe-haven asset, with prices hovering close to record highs. Bitcoin, a bellwether for risk appetite, fell sharply over the weekend as missiles struck Israel. It’s down more than 5% over the last five days, but it’s gained back some ground over the last few hours, as world leaders have called for restraint.
There is cheer for Mitie Group, in early trade as the London-listed outsourcing company, exceeded expectations by hitting or beating its medium-term targets, and rewarding shareholders through a £50m share buyback programme. Investors would have been further encouraged after the company raised its full year operating profit expectations to at least £200m, up from at least £190m announced in January. The group has been making significant strides in keeping inflationary costs under control and turning its large pipeline of opportunities into contracts wins, with the UK government a key customer.
The focus in the UK this week will be on the latest jobs snapshot due out on Tuesday and the CPI reading on Wednesday. Although the latest GDP reading indicated the mild recession is over, growth remains highly sluggish and is unlikely to upset the disinflationary forces taking hold. So, there is still optimism around about the prospect of interest rate cuts coming in the summer, which should help the FTSE 100 hang onto much of its recent progress. However investors are set to be on alert for a fresh deterioration in Middle East relations, which may hold back potential gains.
As investors brace for further conflict, amid the tragic events unfolding, it’s still important to focus on longer-term horizons than short term uncertainty. The shock of conflict is devastating, but history does point to relatively short-lived volatility on financial markets. Daily market moves might be concerning, but trying to transact in periods such as these invariably leads to over-trading and capitalising losses. Investors should take the time to ensure that they have a diversified portfolio with a basket of assets spread across different sectors and geographies.”
