Markets lower amid escalation of tensions in the Middle East

Market commentary

The FTSE/JSE All Share Index (ALSI) fell the most since November, logging a 2.04% decline on Tuesday, driven by concerns over a potential escalation of tensions in the Middle East and speculation over the timing of interest rate cuts in the US. Israel's resolve to retaliate against Iran's weekend missile strike added more market volatility, prompting investors to seek refuge in safe-haven assets like gold, the dollar, and US Treasury bonds. The rand traded above R19/$ for most of the day.

US stocks traded in mixed fashion on Tuesday with investors reacting to Federal Reserve (Fed) Chair Jerome Powell's comments and a new round of earnings reports. The S&P 500 and Nasdaq flatlined, while the Dow Jones saw an increase of over 100 points. Powell's statements regarding the necessity of maintaining elevated interest rates for an extended period to combat inflationary pressures added to the market's cautious sentiment. Meanwhile, robust retail sales in the US provided fresh evidence that consumer spending remains robust despite inflationary pressures, leading to expectations that interest rates will remain elevated for a longer duration this year.

Asian markets declined, with the Shanghai Composite falling by 1.65%, while the Nikkei lost 1.94%. Mainland Chinese stocks reversed gains from the previous session, as stronger-than-expected Chinese GDP data reduced expectations for additional policy easing. Official figures revealed that China's economy grew by 5.30% in the first quarter compared to the previous year, surpassing the 5.20% growth seen in the previous quarter and exceeding expectations for a 5% expansion.

On Tuesday, the FTSE 100 experienced a significant decline, sinking by 1.90%. This marked its worst session since July, following a broader selloff in European equities. The market was affected by ongoing concerns regarding escalating geopolitical tensions in the Middle East, as well as diminishing prospects for interest rate cuts by key central banks. New data revealed that the UK unemployment rate unexpectedly rose to 4.20% in the moving quarter ending February. Despite this, money markets indicated a slight reduction in expectations for rate cuts by the Bank of England (BoE) this year, as wage growth surprisingly did not decrease, adding further pressure to equity markets.