Susannah Streeter, chief investment strategist, Wealth Club: “As the standoff in the Middle East grinds on, with fresh attacks reported once again, it’s acting as a drag on indices. The FTSE 100 is in the red in early trade and Wall Street is also set to waver. The US has struck the port city of Bandar again, after tankers were reportedly stopped from passing through the Strait of Hormuz. There have also been reports of retaliatory drone attacks on a US base in Kuwait. For now, the fragile ceasefire appears to be holding, but hopes for a breakthrough in talks have been dented. The skirmishes have pushed oil prices higher, with Brent crude futures nudging $97 per barrel.
Control over the Strait of Iran appears to be at the centre of the tensions. Iran has now wielded such power over the key waterway that it may not want to give up control, which the US is deeming unacceptable. The Trump administration has placed sanctions on the newly formed Persian Gulf Strait Authority, which is attempting to impose a new maritime regime in the waters. It won’t let ships pass without permission, but if ships deal with the Iranians they could be breaching these new sanctions. So, another impasse has developed and, if it isn’t fully resolved, could remain a source of friction and trigger supply chain snarl ups in the future. With elevated energy prices on the move higher again, tensions are already fanning the fires of inflation. They are also set to weigh heavily on consumer demand, as household bills rise and shoppers tighten their belts across the world.
But the bigger tide washing over global markets remains the demand for AI, which continues to push up valuations as rapid earnings growth develops. Goldman Sachs’ estimates that Spring profits will keep powering the S&P 500 higher, after an exceptionally robust first quarter. Demand right now for the technology to build out the backbone for AI advances seems insatiable, but it’s still unclear how long this appetite will remain voracious and when companies will have had their fill of technological spend.
For now, chipmakers are filling their boots with orders, and it’s sending valuations sky high. Driven by the huge demand for chips, South Korean chipmaker SK Hynix also joined the trillion-dollar club on Wednesday, a day after Micron Technology became a member. The sharp surge in their valuations is likely to set off alarm bells, but for now there is an expectation of further earnings growth ahead.”
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