UK data in focus this week

Last week ended with an overwhelming feeling that the worst is behind us, with the apparent reopening of the Straits of Hormuz meaning that risks around a ground offensive and attacks on regional energy infrastructure could be left behind us. However, the sea of red seen throughout European markets today does serve to tell a different story, with the US blockade of the Straits taking a twist thanks to a US capture of the Iranian-flagged Touska ship. With the ceasefire set to expire on Wednesday, we once again see President Trump threatening Iranian power plants and bridges should a deal not be reached. For Europe, the fear is that the closure of the Straits of Hormuz threatens jet fuel supplies in particular, with International Energy Agency Chief Fatih Birol estimating that Europe has 'maybe six weeks left.' Given the fact that it could take a month for supplies to reach Europe after a reopening of the Strait, every day lost is a step closer to widespread flight cancellations. Understandably we have seen airline stocks sharply lower today, with IAG, Wizz Air, Ryanair, and Lufthansa all down between 2% and 5%.

The risk evident within global markets today represents both a fear of an escalation of the war but also concerns around a renewed focus on tariffs as the US government kicks off a process of refunding roughly $166 billion today. Coming off the back of the Supreme Court decision to rule his IEEPA tariffs as illegitimate, there is a fear that Trump will be planning further hikes in a bid to regain lost funds. However, it is a tightrope that the President is walking, as any additional inflation pressures will come at an inopportune time given the spike in energy prices we are seeing as a result of the war. Notably, the ability to reclaim tariffs provides a boost to US businesses at the expense of the consumer, with many companies having passed on those higher costs only to claim the fees back. 

This week sees a particular focus on the UK, with tomorrows jobs report preceding Wednesday’s CPI release, Thursday’s PMI numbers, and Friday’s retail sales report. Crucially this comes in the wake of an IMF growth write-down and warnings from a report from ‘the Item Club’, who forecasts that the Iran war could mean almost 250,000 jobs lost and the UK flirting with recession. While the UK had been on the cusp of a sharp decline in headline inflation, the chances of a rate cut look somewhat minimal thanks to the rise in energy prices.