Market snapshot: investors react to latest Iran news

Markets hate uncertainty and at present they are being bombarded by little else. Rallies have been short-lived and unconvincing, with the rhetoric from the parties involved in the Middle East conflict apparently at odds.

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Strikes have continued between Israel and Iran, despite the apparent break which the US has suggested. Iranian authorities have thus far denied even having held talks, although the latest announcement that “non-hostile vessels” would be allowed through the Strait of Hormuz has weighed on an oil price which has dipped by as much as 5% overnight. As such, this could assuage investors for now, although the fact that Dow futures are currently indicating gains of up to 0.9% at the open could swiftly change depending on the newsflow.

Quite apart from the conflict, there are other issues which imply some difficult months ahead. There are reportedly signs of cracks within the private credit market, with some funds limiting withdrawals as investors simultaneously move for the exit. At the same time, rising defaults could have wider implications for the economy, let alone some of the larger banks which have exposure to the asset class. 

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Meanwhile, as evidenced by the larger decline of the Nasdaq over recent weeks, it appears that investors are increasingly demanding to see a return on investment in the AI space, where hundreds of billions of dollars have been invested, raising concerns over when and whether the spend will bear fruit.

In addition, and with the end of the first three months imminent, the quarterly reporting season will assume extra importance as companies report the true picture of what is happening on the ground. Even here, however, the figures will be slightly historic and unlikely to show the true impact of the Middle East crisis, to the extent that comments on current trading and the immediate outlook will take priority as investors attempt to gauge the ramifications.

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In the meantime, the backdrop has left many investors scrambling for alternatives away from the asset classes most exposed to risk. The US dollar seems to have regained its safe haven status, while reports have confirmed a return to cash, with an additional $60 billion moving to US money market funds since the outbreak of the conflict. In part, this is reflected by the performance of the main indices in the year to date, with losses of 4%, 4.2% and 6.4% for the Dow Jones, S&P500 and Nasdaq respectively.

It would be premature to call a recovery being in place for the UK’s premier index, although the FTSE100 has at least crept back into positive territory for the year so far. But a gain of 1.2% is almost 8% away from the recent record high achieved at the end of February and underlying pressure remains in place. 

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Commodities were at the centre of initial moves, with some weakness in the oil majors more than offset by gains in selected miners and the likes of International Consolidated Airlines Group SA (LSE:IAG). Meanwhile, investors looking to buy on the dip fed into some strong opening performances in the banking and housebuilding sectors, with Lloyds Banking Group (LSE:LLOY), Barclays (LSE:BARC), Taylor Wimpey (LSE:TW.) and Persimmon (LSE:PSN) all higher. 

The sprightly open followed news of a somewhat irrelevant economic print in the UK, which showed that headline inflation was unchanged at 3% in February. While still above the Bank of England’s 2% target, there had been some signs of stabilisation if not declines, but the conflict which has emerged since has yet to show the sharp inflationary impact of higher energy prices. 

With the domestic economy showing few indications of reasons for optimism in growth, employment or prices, the FTSE250 has somewhat taken the brunt and has fallen by 4.9% in the year to date, despite a strong showing in opening trade today.