Geopolitics continues to weigh on markets
Despite a quiet week for US trade policy developments, President Trump continues to broker peace in the Ukraine-Russia conflict. Last week, Russian President Putin agreed to halt attacks on Ukraine’s energy infrastructure for 30 days, but the ceasefire does not cover other conflict areas. Trump also suggested to Ukrainian President Zelenskyy that an American takeover of nuclear power plants in Ukraine would offer the “best protection” for these facilities.
Israel has broken the ceasefire with Gaza, launching extensive strikes that resulted in over 400 casualties. Prime Minister Netanyahu has vowed to resume “fighting with force” against Hamas, escalating the conflict further.
US Equity Market:
Helped by a relatively quiet week on the political front, the US market found some resistance after four consecutive weeks of losses. The S&P 500 was up 0.4% last week (as of Thursday close), but still down 3.7% year-to-date. The NASDAQ was down 0.4% last week and 8.4% year-to-date.
US markets initially reacted positively to the Federal Reserve’s meeting minutes, which increased the inflation outlook but did not change the pace of future rate cuts. Both the S&P 500 and NASDAQ were up over 1% in the hours following the meeting but gave back some of these gains by close.
UK Equity Market:
The UK market had a steady week, with the UK Large-Cap index up 0.8%, offsetting some losses from the previous week. This brings the index’s performance back above 6.0% for 2025.
Chancellor Rachel Reeves received more bad news last week, with UK government borrowing in February coming in around £4bn over budget. This increases the pressure on her to push forward with planned spending cuts in her Spring Statement on Wednesday. These figures have also led investors to believe that tax hikes are likely later in the year.
Despite the poor fiscal outlook at the start of the year, sterling has been rising steadily against the declining dollar. Sterling now trades at 1.29 against the US dollar.
Inflation, Interest Rates and Bond Markets:
The Federal Reserve held rates steady at 4.5% last Wednesday, in line with market expectations. They also revised the US economic growth forecast downward and increased the inflation outlook, citing Trump’s tariff policy as key drivers for the revisions.
Last Thursday, the Bank of England also held interest rates steady at 4.5%, due to global tariff tensions and inflationary pressures increasing economic uncertainty. This decision was expected and has not dampened expectations for further cuts later this year.
What’s on the horizon:
The world will be watching geopolitical developments in both the Israel-Gaza and Russia-Ukraine conflicts once again. This week is important for UK investors, with the Chancellor’s Spring Statement and February inflation data (CPI) being released on Wednesday. The inflation data will indicate whether the steady rate-cutting cycle executed by the Bank of England has been effective at controlling inflation.