May 15 (Reuters) – The war in Iran is about to enter its 12th week and, with no end in sight, concern is growing about the impact on the real economy.
Not that this worry is evident in booming equity markets, where all things AI are king right now.
Here’s all you need to know about the coming week in financial markets by Samuel Indyk, Lucy Raitano and Amanda Cooper in London, Rae Wee in Singapore and Lewis Krauskopf in New York.
1/ ALL ON THE TABLE
U.S. President Donald Trump has just wrapped up a summit in Beijing with Chinese counterpart Xi Jinping, which one analyst said markets would see as “strategically reassuring, while underwhelming in substance”.
Early next week, the finance ministers and central bankers of the G7 will gather in Paris. Everything from the stalemate in Iran, to securing supply chains for critical minerals, to the oil-price shock and the recent volatility in the global bond market will be on the table.
With no sign of any kind of resolution to the Iran conflict in sight, the oil price is comfortably above $100 a barrel . Even though there is an assumption among traders and investors that a peace deal will be in the offing at some point, the risk of damage to the economy increases with each day.
Bond markets from the UK to Japan and the U.S. have been riled by a range of factors, including rising measures of inflation, political turmoil and mostly by a drastic shift in investor expectations for where interest rates are headed.
2/ CHIPS AHOY
A robust first-quarter earnings season for U.S. companies is ending with a bang, with reports due next week from semiconductor giant Nvidia and a host of retailers highlighted by Walmart.
With its chips used for artificial intelligence applications, Nvidia, the world’s largest company by market value, is a bellwether for the theme that has driven the bull market. Its results on Wednesday come as AI fervour has propelled a wider swath of semiconductor shares.
Investors will look to Walmart and other retailers reporting, including Home Depot, Target and TJX Cos, for signs that war-related inflation may be pinching consumer spending.
S&P 500 earnings are on pace to have climbed more than 28% in the first quarter from the year-earlier period, according to LSEG IBES.
3/ DOWNING STREET DISSENT
British labour market and inflation data could be unwelcome for politicians and policymakers, but what happens in Downing Street will also be closely watched by the bond market.
Markets are increasingly worried about a leadership challenge to Prime Minister Keir Starmer following disastrous local elections this month. The energy impact of the Iran war has wreaked havoc on global bonds and domestic political uncertainty is not helping. Health minister Wes Streeting resigned on Thursday, a move that could set up a leadership contest.
The fear of a more left-leaning PM has stoked concerns about Britain’s fragile finances, and pushed up gilt yields. UK 10-year government bond yields are near 18-year highs.
If Wednesday’s inflation figures show another jump and markets price in even tighter BoE policy this year, the selloff in gilts could have more room to run.
4/ HOW WIDE CAN THE GAP GET?
Nvidia steals the earnings spotlight in the coming week, but whatever the results, investors will be watching to see if the reaction widens or helps close a growing performance gap between U.S. and European equities.
The disruption to global energy supplies has hit Europe harder, given the region’s heavier reliance on imports compared to the U.S. On top of that, a slate of robust big tech results and an increasingly weak European consumer are adding to the divergence in performance.
The S&P 500 is up 8.8% this year versus 3.3% for the STOXX 600. The comparison is even starker since the onset of the Iran war in late February – the S&P 500 rose 8.3% over March and April, while the STOXX lost 3%.
5/ THE COST OF OIL
Japan’s first-quarter growth data due on Tuesday could offer an early read on how the surge in energy prices has weighed on an economy heavily reliant on oil imports. Authorities around the region will be closely watching as they balance rising inflation pressures against downside risks to growth.
GDP will be followed by Japanese trade and inflation figures later in the week, with the latter potentially reinforcing the case for a near-term rate hike by the Bank of Japan.
Elsewhere in Asia, data on Chinese house prices and retail sales are scheduled for Monday. The world’s second-largest economy continues to be plagued by an ailing property market and anaemic domestic consumption, even as broader growth momentum shows signs of resilience.
(Graphics by Kripa Jayaram; Compiled by Amanda Cooper; Editing by John Mair)
