Oil, AI and inflation to round off the week

Will the mix in today's headline go down well? That is the key question at the end of a week that has brought its share of upheaval. The relative lull in the Middle East is dominating the conversation, although oil is still struggling to move away from overheated levels. The release of US inflation data for March this afternoon will bring geopolitics and macroeconomics into direct contact.

Let us begin with a run of figures that are starting to stand out this morning. Hopes of a de-escalation in the Middle East allowed US equities to post a seventh straight session of gains from their low on 30 March. The S&P 500 has risen 7.8% since then, taking it back to where it stood on 5 March. That is the index's longest winning streak since October last year. It is still two sessions short, however, of matching the nine-day run recorded across April and May 2025. Europe has shown less momentum and has been more uneven, but it too has returned to its 5 March levels after rebounding 6.2% from its low on 23 March.

The backdrop has therefore turned supportive for equities again, although, as I saw in the financial press this morning, it remains a fragile one. Everything still rests on the Middle East, where the balance swung back overnight in favour of peace, even though only a few hours earlier the situation had once again appeared to be deteriorating. Donald Trump has continued to pursue a carrot-and-stick approach towards Iran, at such a relentless pace that one could almost say he is now wielding a stick disguised as a carrot, which would be entirely in keeping with his style. The US president says he is highly optimistic about the outcome of the peace talks, while at the same time voicing frustration at Tehran's lack of urgency in helping to restore shipping through the Strait of Hormuz. He has also warned Iran against any attempt to levy a transit charge on passing vessels. The Financial Times revealed the day before yesterday that the country intends to impose a tithe payable in cryptocurrency or yuan amounting to $1 per barrel.

The lack of progress on the energy front pushed oil higher yesterday. The other flashpoint that had left markets doubtful about the outcome of the talks was Israel's continued and violent offensive in Lebanon. But the picture changed overnight: Israel announced the opening of direct talks with Beirut, expected to focus mainly on the disarmament of Hezbollah. All indications are that the White House exerted heavy pressure on the Israeli government to make clear that this operation could not be allowed to jeopardise the negotiations due to begin today with Iran. Following these developments, oil settled back at around USD 96 a barrel, which appears to be its new level, no longer reflecting the full escalation premium that took it to USD 115, but still carrying a sizeable risk premium given that it had been trading at USD 70 before the offensive.

For now, crude is holding at levels that raise the prospect of a broader inflation shock, something that is worrying all the world's major economies. The release of US consumer price data for March today will therefore be crucial in shaping views on the economic fallout from the conflict. Economists expect annual inflation to rise on average from 2.4% to 3.3%, a sharp move in the space of a month, driven entirely by oil. Core inflation, which strips out the effect of energy prices, is expected at 2.7%, against 2.5% in February. The same trend was already visible in Europe, where March data have already been published. Eurostat reported annual inflation of 2.5%, up from 1.9% in February, because of the jump in energy prices. Markets have already priced in a return to higher inflation and are therefore braced for strong readings. The debate is now shifting to how long this shock might last. That is where the real uncertainty lies.

Wall Street's seventh consecutive rise was also fuelled by the return of the AI theme to centre stage. A series of innovations and new capacity agreements announced by the industry's biggest players rekindled investors' appetite. That said, the rebound was concentrated in a very specific part of the technology sector: the core AI suppliers themselves and their immediate ecosystem. Software companies and IT consulting firms, by contrast, were once again heavily sold. Even Palantir, arguably the most AI-focused name among the consulting-related players, came under significant pressure. The ever more extraordinary promises being made by the major AI groups are casting a shadow over some long-established businesses, raising fears that parts of the sector could quickly become obsolete. The mood has been further unsettled by reports surrounding Mythos, the future version of Claude, whose exceptional hacking capabilities are said to be causing serious concern. So much so that its backers at Anthropic have reportedly submitted Mythos to the major digital platforms so they can identify their own vulnerabilities. So much so, in fact, that Scott Bessent, the US Treasury Secretary, and Jerome Powell, Chair of the Federal Reserve, are said to have urged Wall Street's systemically important banks to assess their exposure to Mythos. Against that backdrop, all software names fell yesterday, with cyber-security specialists hit particularly hard. These shifts deserve close attention. I shall return to them in greater detail next week.

In Asia-Pacific, investors have chosen to bet on a constructive weekend, both for easing tensions in the Middle East and for the AI trade, especially the picks-and-shovels end of the market. Japan, where the Nikkei 225 is up 1.9%, and South Korea, where the KOSPI has gained 1.6%, are leading the way. Hong Kong, India, Taiwan and mainland China are also trading well. Australia is finding things more difficult, as its market has more exposure to mining than to AI when it comes to the picks-and-shovels trade: the ASX is ending the week's final session down 0.3%. European markets are expected to open higher.

Today's economic highlights:

On today's agenda: the PPI and inflation indices in China; consumer confidence in Switzerland; industrial production in Italy; in the United States, the CPI, inflation indices, University of Michigan consumer sentiment, factory orders, and the monthly budget; in Canada, employment changes, unemployment rate, and participation rate. See the full calendar here.

• GBP / USD: US$1.34
• Gold: US$4,766.96
• Crude Oil (BRENT): US$96.8
• United States 10 years: 4.3%
• BITCOIN: US$69,908.7

In corporate news:

• Tritax Big Box REIT reported FY25 adjusted EPS growth of 5.4% year-on-year, with expectations of 56% earnings growth from FY24 to FY30, despite a reduced price target from Berenberg.
• Glencore and EQT Corp. agreed to purchase an additional 1 million metric tons per annum of LNG each under 20-year contracts with Commonwealth LNG.
• Beazley remains on Fitch's Rating Watch Positive ahead of its merger with Zurich Insurance Group, which could result in a two-notch rating upgrade.
• GSK withdrew its FDA application for Wellcovorin as an autism treatment, citing it is no longer marketed.
• Unilever announced its acquisition of U.S.-based supplements brand Grüns to strengthen its beauty and wellbeing portfolio.
• Convatec launched its Accelerate strategy to achieve upgraded midterm revenue targets, aiming for 6%-8% annual organic growth.
• Diageo's $2.3 billion sale of its East African Breweries stake to Asahi was cleared by a Kenyan court.
• After 25 years, Adidas is set to lose its contract to supply balls for the Champions League to Nike, according to the FT.
• Italy has proposed reappointing Claudio Descalzi as CEO of Eni for a fifth term. Flavio Cattaneo has been reappointed as CEO of Enel.
• Repsol reports estimated Q1 production of 539,000 barrels per day.
• Subsea 7 has won a major contract from Petrobras for the development of the Sepia 2 field.
• Boliden announced an impairment charge of 700 MSEK (64.4 MEUR) following damage sustained at Garpenberg.
• Bossard reported a slight increase in revenue for the first quarter.
• Skanska has secured a $142 million contract to build a technology complex in the United States.
• Brunello Cucinelli reports a drop of more than 50% in foot traffic in the Middle East.
• CoreWeave has signed a massive $21 billion AI contract to provide computing power to Meta.
• A $7 billion private credit fund managed by The Carlyle Group has capped redemptions following withdrawal requests totaling 15.7% of assets under management in Q1.
• Google has committed to using future generations of Intel's Xeon processors.
• ConocoPhillips is sending a team to Venezuela to assess oil potential, according to Bloomberg.
• Lockheed Martin has secured a $4.8 billion missile order from the Pentagon.
• Amazon is increasing its investment in Mississippi data centers by $12 billion.
• Meta is transferring its top engineers to a new division dedicated to AI tools.

See more news from UK listed companies here

Analyst Recommendations:

• Astrazeneca Plc: Nordea Bank maintains its sell recommendation and raises the target price from SEK 1531 to SEK 1650.
• Jupiter Fund Management Plc: Barclays maintains its underweight recommendation and raises the target price from GBP 1.45 to GBP 1.55.
• Shell Plc: TD Cowen maintains its buy recommendation and reduces the target price from GBX 4237 to GBX 4168.
• Tate & Lyle Plc: UBS maintains its neutral recommendation and reduces the target price from GBX 390 to GBX 375.
• Wise Plc: UBS maintains its buy recommendation and reduces the target price from GBX 1240 to GBX 1160.
• Antofagasta Plc: Morgan Stanley maintains its underweight recommendation and raises the target price from GBX 2880 to GBX 3150.
• Molten Ventures Vct Plc: Jefferies maintains its buy recommendation and raises the target price from CAD 111 to CAD 114.
• Glencore Plc: Jefferies maintains its buy recommendation and raises the target price from GBX 590 to GBX 650.
• Airtel Africa Plc: Barclays maintains its overweight recommendation and raises the target price from GBP 3.50 to GBP 3.60.
• London Stock Exchange Group Plc: JP Morgan maintains its overweight recommendation and raises the target price from GBP 136 to GBP 137.
• Bytes Technology Group Plc: Jefferies maintains its hold recommendation and reduces the target price from GBX 400 to GBX 320.
• Marks & Spencer Group Plc: M Science Investment Research is not rated.
• Oxford Instruments Plc: Investec maintains its hold recommendation and raises the target price from GBX 1950 to GBX 2550.
• Tesco Plc: M Science Investment Research maintains its no rating system.