Overview
Markets enter a week heavy with catalysts. Renewed upward pressure on oil prices, the geopolitical strain from the Iran conflict, fresh U.S. labour market data, municipal elections in the United Kingdom, and rate-setting meetings in Australia and the United States are all scheduled across the coming days. Each development carries the potential to move asset prices and influence monetary policy deliberations.
1. Energy and geopolitics - oil back above $120 and the risk to supplies
Oil has regained momentum, briefly rising above $120 a barrel last week to its highest level since 2022, as the conflict involving Iran moves into a third month. The fighting has created what market participants describe as the biggest ever disruption to energy supplies when measured by the risk to flows through the Strait of Hormuz. Continued pressure on the strait that keeps crude elevated raises the probability that inflationary pressures will remain higher for longer or that growth will slow - in some scenarios both outcomes could occur.
Japan, a major oil importer, recently intervened in foreign exchange markets to support the yen after the currency weakened in part due to the conflict. Global equity markets have so far shown resilience, underpinned by strong corporate earnings and gains in AI-exposed names, but the persistence of the war remains an obvious risk to that stability. With a new month beginning, some market participants will be mindful of seasonal trading patterns encapsulated by the adage - "sell in May and go away" - as they reassess exposures.
2. U.S. payrolls and Federal Reserve signaling
Attention on Wall Street will turn to the April monthly payrolls report due on Friday. Economists polled by Reuters expect the U.S. economy to have added 73,000 jobs in April. That forecast follows a March print that showed payrolls rising by 178,000, the largest monthly increase since December 2024, after a sharp dip in February.
The labour market data arrive amid ongoing debate about the Federal Reserve's path. The Fed held interest rates steady at its most recent meeting, as expected, but three policymakers dissented from the statement's language because they believed an indication of an "easing bias" was no longer appropriate. Meanwhile, comments about a potential leadership shift at the Fed note that Donald Trump appointee Kevin Warsh is preparing to take over as chair, with the White House said to be keen on rate cuts. Those dynamics underscore the tension between political preferences for easier policy and the Fed's internal divisions about the timing of any moves.
3. UK municipal elections - a potential test for Prime Minister Starmer
Thursday's municipal elections in Britain, ordinarily seen as low-impact for markets, could have larger political and market implications this cycle. Opinion polls suggest a heavy defeat for Prime Minister Keir Starmer's Labour Party. Starmer faces criticism over his appointment of Peter Mandelson as Britain’s ambassador to the United States; Mandelson's known association with the late Jeffrey Epstein has become a political liability.
A significant electoral setback could catalyse demands within Labour for Starmer's removal and increase the chances of a successor who favors looser fiscal settings. That prospect is already a concern for fixed income investors. British gilts have sold off at moments that threatened Starmer's political standing earlier in the year, and the 10-year gilt has been the weakest performer among G7 peers since the Iran war began on February 28 - by a wide margin. A renewed prospect of expansionary budgets would likely weigh further on sterling government bonds.
4. European earnings season - energy in the driver’s seat
Several large European companies report results this week, including energy majors Shell and Equinor, banks such as Commerzbank and HSBC, and defence and industrial names Rheinmetall, Leonardo and Renk. On the whole, LSEG I/B/E/S projections point to aggregate European earnings growth of about 3.2% in the first quarter.
However, the headline number masks concentration beneath the surface. Growth is expected to be driven largely by three sectors - financials, technology and energy - with energy the most direct beneficiary of higher oil and gas prices tied to the Iran conflict. If the conflict and the associated energy price surge endure, the broader outlook for European corporate profits could deteriorate, though the current reporting season may be too early for that to be broadly reflected in company guidance. Investors will be watching management commentary for signs of changing expectations in coming months, and the relative strength of U.S. equities has drawn attention amid this backdrop.
5. Reserve Bank of Australia - a close call on a potential third straight hike
The Reserve Bank of Australia meets on Tuesday with markets focused on whether the central bank will deliver a third consecutive rate increase. At its March meeting the RBA raised the cash rate by 25 basis points to 4.1% on a 5-4 vote - the narrowest reported split since the bank began publishing vote breakdowns. Meeting minutes then showed that board members were concerned about the potential duration of the Middle East conflict as they weighed inflation against economic risks.
Another hike would push the RBA's policy rate to a post-pandemic high and reverse the rate cuts applied during the previous year. Governor Michele Bullock has characterised the March split as reflecting timing considerations rather than a difference in direction, and noted that all board members agreed that further tightening would eventually be necessary. Markets currently price roughly an 80% chance of a hike, a probability that eased slightly after a recent core inflation print came in cooler than expected.
What to watch this week
- Oil price movements and any developments affecting the Strait of Hormuz.
- The April U.S. payrolls report and any Fed commentary that clarifies the likelihood and timing of rate cuts.
- Results and market reaction to UK's municipal elections and any shifts in gilt yields.
- European quarterly earnings from major energy, banking, and defence companies for signs of sector-driven momentum or emerging guidance changes.
- The RBA decision and accompanying minutes for insight into how the geopolitical backdrop is factored into Australian policy.
This week’s confluence of geopolitics, labour-market data and central bank decisions could rearrange risk premiums across commodities, sovereign bonds and equities. Market participants and policymakers alike will be parsing incoming data closely for indications of whether current price moves are transitory or the start of a broader shift.