Written by Millan Chauhan
The conflict between the United States and Iran widened further last week. On Wednesday, Egypt was struck for the first time, with a drone attack hitting two vessels at the port of Damietta, a Mediterranean hub for liquefied natural gas. Despite the escalation, oil prices ended the week lower, with the Bloomberg Commodity Index, a broad measure of energy, metals and agricultural prices, falling -2.1%. Global equities returned +0.4%, as measured by the MSCI ACWI index (a broad gauge of companies around the world).
Against that backdrop, the Federal Reserve, the US central bank, held interest rates steady at 3.50% to 3.75%, its fifth hold in a row. Three regional officials voted in favour of a rise, reflecting persistent concern over above-target inflation, a move that coincided with US long-term government bond yields climbing to their highest level in 19 years. Shares fell sharply at first before recovering by Friday as technology earnings took over the story. Microsoft and Amazon both climbed strongly after linking their artificial intelligence spending plans clearly to growing demand, while Alphabet (parent company of Google) fell as investors questioned whether its own spending was as well justified. The S&P 500 ended the week up +0.1%, while the more technology-focused Nasdaq 100 slipped -0.4%.
In the UK, the Bank of England held its base rate at 3.75%, in a vote that leaned more towards higher rates than markets expected. UK shares still gained over the week, with the FTSE All Share (a broad measure of the UK equity market) up +1.2%.
Japanese Equities and Emerging Markets outpaced global equities last week, returning +1.6% and +1.4% respectively. Taiwan’s TSMC, the world’s largest chipmaker, reported record profits, yet its shares fell as investors took fright at a much larger spending plan for the year ahead, and South Korea’s SK Hynix, a major memory chipmaker, saw the same reaction after lifting its own investment plans sharply. Chinese shares still rose, supported by renewed enthusiasm for companies tied to artificial intelligence.
Taken as a whole, the return from global equity markets gave little sense of how volatile the week was underneath. Beneath the surface, outcomes varied enormously from company to company, which is a reminder of why diversification across investment styles, regions and asset classes matters.
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