Written by Dominic Williams
Last week saw several of the world’s major central banks delivering their latest interest rate policy announcements. Yet the most striking feature was not what was decided, but how differently policymakers framed a remarkably similar set of pressures. Energy prices have risen materially in recent weeks, and that pressure is now being felt across most major economies.
The US Federal Reserve, the Bank of England, the European Central Bank and the Bank of Japan all held interest rates steady. Yet beneath the uniform headlines, the dispersion was clear. The Bank of Japan, holding at 0.75%, sharply raised its inflation forecast for the current fiscal year, while the US Federal Reserve, holding in a range of 3.50% to 3.75%, saw unusual internal disagreement over the path ahead. The Bank of England held at 3.75%, warning that energy costs could push UK inflation even higher above its 2% target, while the European Central Bank held its deposit rate at 2.0% and acknowledged that the Middle East conflict would lift near-term inflation. The common thread was a reluctance to act while oil prices remained so uncertain, but the underlying tone, particularly in Tokyo and Washington, was notably more concerned about the persistence of inflation than the headline decisions alone suggested.
Equity markets ended the week broadly flat, with the MSCI All Country World Index falling -0.1%. Beneath that calm surface, however, regional outcomes varied significantly. Japanese equities were the standout, with MSCI Japan rising +1.1% as the Yen strengthened against Sterling (+1.2%). The S&P 500 was flat and the FTSE All Share closed -0.1% lower. Asian markets bore the brunt of the energy-related weakness, reflecting the region’s heavy dependence on imported oil. MSCI China fell -2.5%, MSCI Taiwan declined -2.0% and MSCI India was down -1.2%, with the broader MSCI Emerging Markets Index falling -1.4% over the week.
Borrowing costs across South and Southeast Asia have risen sharply in recent weeks, reflecting concerns over the impact of higher oil prices on countries that are predominantly net energy importers. While this has weighed on these markets in the short term, it also means that investors holding their government bonds can now earn higher levels of income meaningfully than just a few months ago. Local currency emerging market debt remains a useful complementary asset held within our fixed income allocation, as its returns tend to behave differently to those of global equities and other bonds.
Meanwhile, Big Tech earnings provided another illustration of dispersion, with Meta, Alphabet (Google), Microsoft, Amazon and Apple all reporting their latest profits last week. The Nasdaq-100, a US technology-focused index, rose +0.6%, but this masked very different outcomes at the company level. Alphabet rose strongly on its results, while Meta fell despite solid earnings, as investors questioned whether its rapidly rising AI capital expenditure would translate into a clear path for future revenues.
Oil markets remained firmly in focus, with Brent crude briefly pushing past $126 per barrel after President Trump indicated that the United States would maintain its blockade of the Strait of Hormuz until Iran agreed to a deal to end its nuclear programme. The Bloomberg Commodity Index rose +3.1% in Sterling-hedged terms, with commodities continuing to provide useful diversification within portfolios.
The week was a reminder that, even when events appear to unfold in parallel, outcomes can diverge significantly. In this environment, genuine diversification across regions, asset classes and styles remains the most reliable foundation for long-term compounding.
All performance figures are stated in Sterling terms, unless otherwise specified.
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