Good start, then all change!

The year started off with the global economic outlook in a fairly good mood. As we outlined in the year end commentary, the worst fears over last year’s U.S. tariffs had abated, inflation expectations were reducing and interest rates were expected to be cut further. Unsurprisingly with that backdrop, the year commenced with global economies recovering, most global stock markets rising, and the U.K’s FTSE 100 hitting all-time highs.

All changed on the 28th of February, when the Iran war started. This was due to the economic consequences of the conflict. Iran’s retaliations of closing the Strait of Hormuz and attacking other Persian Gulf State’s energy facilities have caused Oil prices to surge past $100, from under $70 beforehand. In addition, LNG (Liquified Natural Gas) prises have also surged as Qatar is the world’s largest producer and not only faces delivery disruption, but has also suffered a loss of capacity due to rocket attacks on their production facilities. LNG has become more important since countries have reduced their reliance on Russian gas. Around a fifth of the world’s supply of these two energy resources need to pass through the Strait of Hormuz and currently cannot. This sudden reduction of global supply has caused the largest Oil crisis since the 1970s.

As witnessed after the invasion of Ukraine in 2022, rising energy prices can cause inflation to increase, creating a drag on economic growth. As I write this (1st April) we do not know how long the current crisis will continue. If the war ends soon and the supply ships are once again allowed to pass, the global economic effect may be more limited. Although, it will still take a while for things to settle down and normality to resume, because of the several weeks gap in supply to refineries around the world. In the meantime, this will cause at least some temporary rise in inflation. However, If the war becomes extended the economic impact will keep growing, with sustained rising inflation and possible supply shortages.

We hope for the former outcome and over the last day the U.S. administration have been talking about ending the war soon, indeed the U.S. Secretary of State Marco Rubio, said Washington could see the “finish line” in the Iran war. At the same time thousands more U.S. troops and marines have been arriving in the Middle East. Time will tell!

AI/Technology

Another significant occurrence in the last quarter was the sell-off in technology shares, over fears that constantly developing AI will make some services redundant. Tech shares have been seen as overpriced for some time now and markets have been concerned a sell-off would spill over into wider markets, in the way it did over the ‘dot-com’ crash at the turn of the century. Although the recent event was not quite a bursting of the bubble, it was re-assuring that it failed to have a wider impact on markets and has helped knock some ‘froth’ off of the Tech sector valuations, reducing the fears of a crash.

Global picture

Global markets have been mixed over the quarter, some up despite the Middle East upheaval, others down. The U.K’s FTSE 100 fared the best, closely followed by Japan’s Nikkei 225. While European shares (Euro STOXX) and the U.S.A’s S&P 500 were in negative territory.

The global economic outlook is uncertain, being dependent on how quickly the Iran war ends and how quickly the shipping disruption is resolved. At the time of writing we have no way of knowing the answer to this, but hopefully the end will soon be in sight.

Sources: Reuters, Financial Express, BBC.

The comments made in this review represent our current investment views and are in no way a guarantee of future performance.
Past Performance is no guarantee of, or guide to future returns.
The value of investments and the income from them can fall as well as rise and you may not get back the original amount you invested.
The comments made in this review represent our current investment views and are in no way a guarantee of future performance.