North America
US equity benchmarks recorded a third consecutive week as concerns over heightened conflict in the Middle East. The S&P 500 and Nasdaq Composite lost 3.04% and 5.52%, respectively. The Dow Jones Industrial Average closed flat. Adding to this, investors grew increasingly concerned over the possibility of higher rates for longer, as a string of disappointing inflation data continued to alarm investors, whilst forcing the Federal Reserve to re-think its rate-cutting schedule on its first interest-rate cut. On this, Chair Jerome Powell said that it will likely take “longer than expected” to gain the confidence needed to lower rates, all but slashing hopes for more than two cuts in 2024 (while some worry that there may be no cuts at all). Powell’s lack of urgency to adjust rates echoes that of his colleagues. Fed officials are growing increasingly concerned that elevated interest rates may not be doing enough work to hamper overall demand. Thursday saw New York Fed President John Williams warn that additional rate hikes are possible if the data warrants. Atlanta Fed President Raphael Bostic said that policymakers would not be in a position to cut rates until the end of the year. On Monday, the Commerce Department reported that retail sales rose 0.7% in March, well above consensus expectations of around 0.3%. February’s gain was revised upward to 0.9%. The week began with news that Iran’s retaliatory strikes on Israel did not result in substantial damage, with nearly all missiles fired into the country intercepted by air defences. Nonetheless, markets grew fearful of a military response from Israel, following the Israeli war cabinet’s decision to retaliate “clearly and forcefully.” Friday saw stocks sink following Israeli strikes on air defence facilities within Iran, (as well as on Iran-backed groups in Iran and Iraq). Both sides were muted in their response to the assault – a sign that neither wanted to risk further escalation and a full-blown regional conflict. On this, Iranian commanders stated that there was minimal damage and that explosions near the central city of Isfahan were caused by air defences.

Europe & UK
European benchmark indices closed lower with their US counterparts as tensions rose in the Middle East. The pan-European STOXX Europe 600 Index lost 1.18%, followed by Germany’s DAX at 1.08%. The French CAC 40 closed flat while the UK’s FTSE 100 Index declined 1.25%. The previous week saw the European Central Bank (ECB) hold interest rates steady, with certain members strongly hinting that it would consider cutting interest rates at its next meeting in June. The ECB’s governing council met in Frankfurt where it announced that its benchmark deposit rate would remain at 4% until policymakers were convinced that price pressures reached a semblance of stability. ECB President Christine Lagarde told reporters that a minority of policymakers had argued for an immediate cut. Eurozone inflation has fallen from a 2022 peak of 10.6% to 2.4% in March – close to the central bank’s 2% target.” Lagarde said “bumps in the road” could cause inflation to “fluctuate” over the coming months before falling to its target by mid-2025. Nonetheless, multiple ECB policymakers reiterated at the recent International Monetary Fund (IMF) meeting that rate cuts would likely come in June, lowering borrowing costs. Lagarde seemed reluctant to say whether there might be more than one rate cut. Lagarde maintained her long-held position that would be dependent on incoming economic data, highlighting oil prices as being a key factor in light of heightened global tensions. Meanwhile, in the UK, CPI inflation (consumer prices index) UK grew at an annual 3.2% rate in March, a drop from February’s 3.4% – reaching its lowest level in over 2.5 years. Services inflation remained high but slowed to 6.0% from 6.1%. On this, Bank of England Governor, Andrew Bailey, voiced his optimism, stating “In the UK, we’re disinflating at what I call full employment,” he said at the IMF annual meeting. “I see, you know, strong evidence now that that process is working its way through.”

Japan
Tensions across the Middle East saw Japanese markets record substantial declines over the week, as energy prices came under the microscope (Japan being a net energy importer). The Nikkei 225 Index lost 6.18%, while the broader TOPIX Index declined 4.80%. Adding to woes, the Yen continued to hover near 34-year lows and finished the period in the mid-JPY 154 against the dollar. Investors continued to speculate as to whether Japanese authorities would intervene in the currency markets to prop up the yen, however, no such move has taken shape. The weakness did provide a boon for Japan’s export-driven companies, however. Japanese exports rose 7.3% year-on-year in March, slower than February’s 7.8% gain. Nonetheless, the latest data print represents a 4th consecutive month of growth in exports. On the inflation front, Japanese core consumer price index (CPI) came in at 2.6% year-on -year in March, slightly lower than had been expected and down from the 2.8% in February.