The US and Iran signed a memorandum of understanding, a step to winding down their war as well as being able to re-open the Strait of Hormuz. This helped to boost market sentiment and also prompted a decline in oil prices, with Brent crude ending the week down 7.9%, returning back towards its pre-war price.
US markets were closed on Friday but stock indices managed to end higher for the week. The S&P 500 added 0.9%, the Dow Jones Industrial Average was up 0.7% and the Nasdaq Composite climbed 2.4%. The latter’s outperformance was aided by strong gains in semiconductors, amid the easing inflation fears. Weekly gains came even despite a sell-off on Wednesday in response to the Federal Reserve meeting which was more hawkish than expected. The latest projection revealed that half of policymakers are now expecting at least one rate hike this year, and chairman Kevin Warsh emphasised the Fed’s commitment to price stability. In response, short-term Treasury yields pushed higher, although for the week the 10-year yield ended slightly lower at 4.46%.
European markets eked out modest gains for the week, initially boosted by the US-Iran deal before retreating towards the end of the week, due to a flare-up in tensions in Lebanon as well as the more hawkish Fed. Earlier the pan-European STOXX 600 had notched a fresh record high and ended the week 0.4% higher. Mining stocks were amongst the steepest decliners, weighed down by lower commodity prices. Most regional indices notched gains, although the UK FTSE 100 saw declines. On Thursday the Bank of England held its interest rate steady, as did the Swiss National Bank, whereas in the previous week the European Central Bank had hiked rates.
Over in Asia, the Bank of Japan raised its interest rate by 25 basis points to 1%, bringing the rate to a 31-year high. Despite this the Japanese yen approached a 40-year low, increasing the prospect that there may need to be intervention from authorities. Nevertheless, Japanese equity markets saw strong advances. The Nikkei 225 added 7.6% to hit fresh highs, receiving a boost from semiconductors and other technology names. In China the Shanghai Composite added 1.5% in a holiday shortened week. Economic data was mixed with export-linked sectors remaining supportive while domestic demand has lagged. Meanwhile the Hong Kong Hang Seng dropped 3.2%.