Matt Britzman, senior equity analyst, Hargreaves Lansdown: “UK markets opened lower this morning, weighed down by a softer-than-expected GDP print and ongoing tensions in the Middle East. The economy failed to grow at all in January, suggesting activity was already subdued even before the recent jump in energy prices began to bite. That’s starting to force a rethink of this year's outlook, with previous 1.0% growth expectations now looking optimistic - with some scenarios pointing to closer to 0.6%, 0.4% or even 0.1%, depending on how long elevated energy costs stick around. While some temporary factors may have played a role, the broader concern is that rising energy prices from March onwards are likely to squeeze both household spending and business investment, potentially leading to a loss of momentum in growth in the months ahead, just as inflation risks remain elevated.
It was a tough session for US markets last night, with the S&P 500 falling 1.5%, and futures pointing to more weakness heading into this afternoon's open. Investors are starting to question the assumption that the conflict in Iran will be a short-lived disruption, as increasingly heated rhetoric heightens the risk of sustained pressure on energy prices. Growth stocks were among the hardest hit, lagging value by around half a percentage point as markets leaned more defensively. Interestingly, software names have quietly become a bit of a hiding place for investors, climbing 6.5% so far in March after taking a bruising in recent months.
Energy markets are looking relatively calm this morning, but with oil prices still hovering around the $100 mark and weekly gains of roughly 8%, there’s been little real let-up. Traders are continuing to weigh the fallout from the conflict with Iran, with no signs of de-escalation and production disruptions keeping supply concerns front of mind. With the Strait of Hormuz essentially closed, any measures to relieve price pressure are likely to be little more than a temporary stopgap.
Gold is on track for back-to-back weekly losses, as its traditional safe-haven appeal takes a back seat. The prospect of elevated energy prices, sticky inflation, and the knock-on impact of higher interest rates is proving a bigger concern for investors right now. Neither of those are particularly supportive for holders of a non-productive asset like gold, which doesn’t offer any income to offset higher rates.”
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