Susannah Streeter, chief investment strategist, Wealth Club: “Fears about war fanning the fires of inflation are back front and centre as the US renews strikes on Iran amid evidence that energy stockpiles are shrinking fast. The worries have seen optimism seep away, with the Footsie set for a cautious start and Wall Street bracing for another wobble.
While the latest skirmishes between the US and Iran, including the downing of an American Apache helicopter, are proving unsettling. But the key market driver is set to be the US inflation data out later. The CPI numbers are set to show another painful rise in costs for consumers, who are already grappling with sharp increases in the costs of everyday goods. The expectation is that the headline rate will rise to 4.2% year-on-year with a 0.5% jump in May. The big concern is that elevated wholesale energy costs are spreading and settling into the broader economy. The latest attacks in the Middle East indicate that the conflict is entrenched and increasingly hard to solve. Brent crude, the benchmark, has edged higher from yesterday’s lows and is fluctuating as pessimism ebbs and flows.
Energy stockpiles are diminishing, as nations scramble for supplies. US industry data from the API showed US crude inventories fell by 9.1 million barrels last week to their lowest level in four months.
As the supply crunch continues, demand for energy, labour and materials is becoming more voracious amid the AI revolution. Tech giants are spending huge sums on building out the infrastructure to power artificial intelligence, and that’s pushing up costs all over the place. Data centres are hungry for energy, and although longer-term productivity gains could lower costs, for now AI demand is adding to inflationary pressures. The hypervaluations we are seeing demand a mega build-out of infrastructure to support the promise of societal transformation.
The AI space is increasingly crowded with companies priced for perfection jostling for investors' attention. Elon Musk is aiming to rocket higher than the rest with his SpaceX listing garnering huge attention. It’s adding to the jitters which the market can’t shake off, and it’s likely that the SpaceX launch on Friday will ignite fresh volatility.”
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