Garton Global | Monthly Market Digest
Sterling enters May at a critical juncture as markets shift from reacting to Iran headlines towards pricing endgame scenarios around a lasting peace deal or renewed escalation. Globally, elevated energy prices continue to fuel stagflation risks, leaving the Bank of England, Federal Reserve and European Central Bank caught between inflation and slowing growth, while political instability in both the UK and US is adding fresh volatility to FX markets. Looking ahead, investors remain focused on diplomacy, central bank guidance and political stability as the key drivers of risk sentiment.
Check your positioning and speak to the Garton Global team today.
LAST MONTH: APRIL
🇺🇸 Oil whipsawed as Iran diplomacy swings drove risk sentiment
• Oil whipsawed as markets moved between ceasefire optimism and renewed escalation risks in the US-Iran conflict.
• Peace-talk headlines pushed crude lower and supported equities, while stalled negotiations and fresh military threats quickly reversed sentiment.
• The swings kept volatility elevated, with risk assets and the US dollar reacting sharply to each shift in the diplomacy cycle.
🇬🇧 UK and European markets weakened as the energy shock hardened into stagflation risk
• UK and European markets weakened as higher energy prices fed directly into inflation expectations while weighing on growth prospects.
• The UK looked especially exposed as imported energy costs threatened households, businesses and demand.
• The backdrop left central banks caught between containing inflation and avoiding further pressure on already slowing economies.
🇬🇧 FX shifted as UK and US political risk returned to focus
• FX markets shifted as investors looked beyond the war and refocused on domestic political risks in the UK and US.
• Sterling faced pressure from concerns around Prime Minister Starmer and UK fiscal credibility, while the dollar swung on Trump policy unpredictability and renewed questions over Federal Reserve independence.
• The move made FX trading more selective, with relative political stability increasingly driving flows rather than pure risk-on/risk-off sentiment.
THIS MONTH: MAY
🇺🇸 Markets brace for Iran endgame scenarios as volatility risks remain asymmetric
• Global markets brace for a decisive shift in the Iran conflict as investors move from reacting to headlines towards pricing potential endgame outcomes.
• A credible peace deal could push oil lower, lift equities and weaken the US dollar, while renewed escalation or blockade risks could trigger another oil spike and broader risk-off flows.
• With investors increasingly fatigued by headline volatility, markets may react more sharply to genuine breakthroughs or setbacks.
🇬🇧 Central banks face pressure as stagflation risks sharpen
• Central banks face pressure as elevated energy-driven inflation collides with a weakening growth backdrop, particularly in the UK and Europe.
• Policymakers must decide whether to tolerate higher inflation or tighten further into slowing demand.
• Guidance from the Bank of England, Federal Reserve and European Central Bank could drive sharp FX moves, with even small shifts in tone likely to reshape rate expectations.
🇬🇧 FX faces volatility as political risk starts feeding into markets
• FX markets face volatility as political uncertainty increasingly feeds directly into asset pricing.
• Sterling remains sensitive to UK leadership pressure and election risks, particularly against the euro, while the dollar could see sharper swings as Trump policy shifts and concerns over Federal Reserve independence unsettle investors.
• The broader trend favours politically stable markets over higher-growth narratives as investors prioritise policy clarity.
Have a great month,
The Garton Team.