Market snapshot: mining for bargains

A return to the AI trade and an outstanding quarterly reporting season have cushioned the blow from the Middle East conflict, but the latest inflation reading is a reminder that the effects are beginning to wash through to the US economy.

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The Consumer Price Index rose by 0.6% in April, annualised to 3.8% and ahead of the 3.7% which had been expected. Not only was the reading the highest for three years, there is every possibility that the ascent will continue into May at the very least.

With the oil price still at elevated levels, up by more than 50% since the start of the conflict and having doubled in the year to date, the effects are clearly showing, especially on prices at the pump as the American populace prepares for the summer driving season.

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Even after the end of what is becoming a prolonged stalemate, it will take several months until the supply chain can be re-established. As such, the possibility of an interest rate cut from the Federal Reserve has all but been priced out for this year, despite the dovish tilt of the incoming Federal Reserve Chair. Indeed, the likelihood of a Fed hike to combat persistent inflation has risen over the last week to around 35% which, while not the base case, is nonetheless a figure which investors will continue to monitor closely.

Elsewhere, a ceasefire which the US President described as being on “massive life support” is showing signs of creaking. The latest reported counterproposal from Iran revealed an insistence on full sovereignty over the Strait of Hormuz, the lifting of economic sanctions and war reparations, which the US has simply called “unacceptable”.

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The imminent meeting between the US and China will undoubtedly focus on the conflict and any potential diplomacy which the Chinese may be able to offer given its relationship with Iran. Of equal importance could be discussions around the current tariff truce, although issues remain in place on rare earths.

The inflation reading and general uncertainty was enough to push the more technology-driven S&P500 and Nasdaq into the red, with the likes of Micron Technology Inc (NASDAQ:MU) and Advanced Micro Devices Inc (NASDAQ:AMD) giving up a fraction of their stellar gains over the last month. Even so, the recent rally has left the main indices in good shape, with the Dow Jones, S&P500 and Nasdaq having added 3.5%, 8.1% and 12.2% respectively in the year to date.

Asian markets were mixed overnight, with South Korea’s Kospi index regaining its poise after a sharp drop earlier in the week, when a senior figure in the administration suggested that the government could redistribute corporate windfall AI profits to citizens. Such a move has yet to be confirmed, although the more general global implications of such a suggestion given the rise in unemployment which AI could eventually bring is an interesting development.

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The FTSE100 has taken a back seat of late as the technology trade has reasserted its influence across other global markets, especially the US and Asia. Even so, a strong showing from the mining sector driven in part by a strong copper price, plus Intertek Group (LSE:ITRK)’s acceptance of a bid from EQT which propelled its shares higher by up to 8%, lifted the index to a robust opening and leaves the premier index ahead by 4.2% so far this year.

The more domestically focused FTSE250 has been under some pressure, not least due to uncertainty surrounding the UK economy as the political machinations continue to play out in Whitehall. Nonetheless, the index opened higher given its own exposure to the mining sector, dragging the index back into positive territory for the year, albeit by a marginal 0.5%.