Geopolitical tensions remain the focus

Heightened geo-political tensions will remain to the fore this week. The news that the US House of Representatives had finally passed a military aid bill for Ukraine will mean the continuation of that conflict and should slow recent Russian advances while there remains an increased risk of a wider Middle East War following last week’s Iran/Israel attacks.  In FX markets, the euro has ticked up to around $1.0660 to the dollar but sterling has lost some ground and dipped to below $1.24 to the the dollar and the euro is back up to over 86p.

Government yields pushed higher over the course of last week, with US 10-year yields up to over 4.60% on Friday from around 4.50% the previous Friday, although there was little movement on Friday itself. Similarly UK 10-years start off this week close to 4.25% from 4.15% the previous week while German 10-years are at 2.5% this morning from 2.35% last Friday week.

Crude oil prices remain elevated and sensitive any news from the Middle East, a barrel of Brent crude dipped back below $90 during last week but remains fairly close to that level, well up on the $75/barrel prevailing at the turn of the year.

House prices in the UK rose by 1.1% month-on-month in April according to Rightmove, the fourth consecutive monthly gain. That left the annual increase at 1.7% this month, and means that asking prices in the UK are now close to record highs. Rightmove said there are signs of more activity in the market with the numbers of sellers up 12% on the year while sales rose 13%. However, the survey did sound notes of caution as with BoE monetary policy at restrictive levels , it said ‘these are not the conditions to support substantial price growth’.

Bank of France Governor Villeroy says the European Central Bank would not be turned from a June rate cut despite oil price volatility caused by conflict in the Middle East. He said there should be no ‘mechanical reaction’ even if there was a price shock caused by higher oil prices.  He said that cuts after that should be pursued at a ‘pragmatic pace’ and that the Bank would have the capacity to adapt if any external shock threatened the inflation path returning to normal. Others remain more cautious with Governing council member Nagel out on Friday to say that it  ‘absolutely premature’ to talk about cuts beyond June and rates must remain ‘restrictive’ even after cuts start while their colleague Muller said that monetary policy should not be loosened too quickly and cuts after June could be ‘reasonable’.

Its fairly quiet on the economic data front today with the CBI report due in the UK and consumer confidence in the Euro area.