- Equity markets set for a soft open
- US markets hit all-time highs as AI powers on
- Central Banks in focus, with the UK and US expected to hold
- Barclays Q1 results didn’t offer up too many surprises
- Microsoft and OpenAI take fresh steps to forge their own paths
Matt Britzman, senior equity analyst, Hargreaves Lansdown:
Global equity markets look set for a softer start, with the FTSE 100 down a touch and US futures pointing lower as investors weigh ongoing uncertainty in the Middle East. Talks between the US and Iran appear to be inching forward, but progress is slow, and the Strait of Hormuz is essentially shut, keeping oil prices elevated around the $100-110 mark. Earnings season has helped markets look through the disruption, but the longer key oil flows remain constrained, the greater the risk that higher energy costs begin to bite. We are not there yet, but markets are edging closer to a point where a prolonged supply shock could start to weigh more meaningfully on sentiment.
US markets look set for a softer open, with futures edging lower, but that comes after a strong session which saw both the S&P 500 and Nasdaq close at fresh all-time highs, led once again by AI-exposed names. The tone this earnings season has been telling, with chipmakers’ beats continuing to be rewarded while any disappointment from software names is being met with a sharper reaction. That split points to a market still leaning into AI infrastructure spend, suggesting we may not have reached a peak for chips or a trough for software just yet.
Central banks move into focus this week, with the Bank of Japan kicking things off with a widely expected hold, albeit with signs of growing unease around inflation. The Federal Reserve looks set to follow suit, with markets firmly pricing in no change as policymakers weigh the impact of higher energy costs on the outlook. In the UK, while some are still calling for a hike, the base case remains a hold, though a split vote can’t be ruled out as inflation risks lean to the upside. Energy remains the key swing factor. The longer the disruption in the Strait of Hormuz persists, the more pressure it builds on inflation expectations, raising the chance that central banks will be forced to lean more hawkish in the months ahead.
Barclays’ update was a steady rather than spectacular one, with a solid showing from the Investment Bank (albeit with a larger impairment than expected) and US consumer arm helping offset softer delivery in UK retail and wealth, though results weren’t quite as strong as we saw from key competition across the pond. Guidance edged higher, with income expectations nudged up and the broader profitability story still pointing in the right direction. There’s nothing transformational here, but the direction of travel remains positive, supported by improving efficiency and a strong capital return profile. Taken together, it’s a quietly reassuring update that keeps the longer-term investment case intact, even if Wall Street continues to set the pace.
Microsoft and OpenAI are taking fresh steps to reshape their partnership, and what initially looked like a negative for Microsoft is increasingly being seen as a win for both sides. Microsoft retains access to the latest models and continues to benefit financially from OpenAI’s growth, while giving up Azure exclusivity at a time when capacity constraints mean it couldn’t fully meet demand anyway. The shift gives OpenAI more flexibility to scale, without materially weakening Microsoft’s strategic position in AI. Crucially, with a large economic stake still in place, Microsoft remains a direct beneficiary of OpenAI’s success, keeping the long-term alignment firmly intact.
The author holds shares in Microsoft.
