Israeli attack on Iran may help draw a line under the conflict for now

• UK retail sales falls flat
• FOMC may have to wait until 2025 for the first rate cut
• Israeli strike in Iran could draw a line under the issue for now

European indices are trying their best to stage recovery after a sharp decline at the open. European data has come in the form of UK retail sales, wrapping up a UK-centric week that saw higher unemployment, elevated wages, and a slower than expected decline in CPI inflation. Today’s retail sales release highlighted a largely underwhelming level of activity from the UK consumer, with the -0.3% core retail sales proving particularly concerning of retailers. Nonetheless, the lack of spending growth will embolden many who are hoping to see the soft economic conditions continue given the disinflationary effect on prices.

Once again markets are faced with the prospect of pushing the eagerly anticipated Federal Reserve pivot further into the future following comments from historically Dovish Fed member Kashkari, who stated that we may have to wait until 2025 for that first rate cut. Unfortunately, the data seen over the past two months have done little to embolden the doves, and the Federal Reserve have been left with little choice but to temper expectations despite having laid out a blueprint for three 2024 cuts in the March dot plot. With the Federal Reserve set to enter their media blackout period this weekend, any additional commentary from the FOMC will have to take place today if they hope to further inform markets of the tone that will likely be taken on 1 May.

The widely anticipated Israeli retaliation in Iran finally took place, and whilst the initial spike in oil may have highlighted the initial fear of further escalation, we have seen both equities and crude reverse some of those preliminary moves. The Israeli decision to attack an area close to a nuclear facility serves as a warning that they could strike such highly sensitive targets in the future should they wish. However, the Israeli response has been notably more reserved, thanks no doubt to the influence of Western allies who have sought to avoid a wider conflict developing. Given the fact that Iran had provided advanced warning of their attack, it is clear that the events of the past week appear to be more about showing their willingness to act rather than actually seeking to incite a war between the two nuclear nations. For markets this is a best case scenario and should hopefully remove the fears that have been playing out within equity and energy markets in particular.