April 24 (Reuters) – Next week combines the big three obsessions for investors right now – the war in Iran, the path of interest rates and the AI boom.
Four of the world’s top central banks meet, wondering how long they can realistically look through the spike in global energy prices due to the blocked Strait of Hormuz, while five of the so-called “Magnificent Seven” U.S. tech giants report their earnings.
Here’s all you need to know about the coming week in financial markets by Marc Jones and Dhara Ranasinghe in London, Lewis Krauskopf in New York and Rae Wee in Singapore.
1/CORRIDOR OF POWER
Next week, like the eight weeks that have gone before it, will be dominated by whether progress can be made in the Iran war and reopening the Strait of Hormuz, the maritime chokepoint that is now the key power-play in the conflict.
Iran has been flaunting its tightened grip over the shipping corridor and though there has been some relief that Washington and Tehran and Israel and Lebanon have extended respective ceasefires, the fact oil is well over $100 a barrel again shows just what the markets think.
Diplomacy, any sign of back-channel talks and U.S. President Donald Trump and Iran’s Supreme Leader Ayatollah Mojtaba Khamenei’s social media posts will all continue to drive volatility, especially with Trump now saying he will not be rushed into a deal as he wants something that is “everlasting”.
The prolonged conflict is also deepening the fissure between the U.S. and NATO. Trump has repeatedly criticised the alliance’s members for failing to support his attacks on Iran and Washington is now weighing punishing “difficult” countries, such as Spain, according to officials.
2/KA-POWELL!
The world’s most influential central bank, the Federal Reserve, is expected to keep U.S. interest rates steady on Wednesday, meaning it will mostly be about its signals for the months ahead given most economists think cuts are off the table for now.
An intriguing subplot is whether this will be Jerome Powell’s last meeting in charge, or even if he attends in the future, given his broader stint as a Fed governor – which runs until 2028 – is also under attack.
The 73-year-old’s term as Fed chair is due to end next month so this should be his swansong. But a key U.S. senator is vowing to block Trump’s pick for Powell’s successor – former Fed governor Kevin Warsh – until a probe into Powell’s renovations of the Fed’s headquarters is dropped.
There will be some key data to digest too. First-quarter GDP and then March personal consumption expenditures price index (PCE) – the Fed’s preferred inflation gauge – are both due out on Thursday.
3/BIG TECH’S BIG WEEK Reports from five of the so-called “Magnificent Seven” megacap companies headline a deluge of first-quarter earnings next week.
It comes at a time where almost unshakable investor optimism about AI-driven profits is providing a critical support for near-record high equity indexes.
On Wednesday alone, reports are due from Alphabet, Microsoft, Amazon and Meta – four “hyperscalers” now spending billions on data centres and other high tech infrastructure.
iPhone maker Apple reports the day after, hot on the heels of news that it has picked longtime hardware boss John Ternus to take over the CEO reins from Tim Cook, 15 years after he took over from Apple’s co-founder Steve Jobs.
It is not just tech though. More than a third of the S&P 500 are reporting next week, including weight-loss drugmaker Eli Lilly, oil major Exxon Mobil and credit card giant Visa.
4/ OPTIONALITY
Both the European Central Bank and Bank of England are tipped to leave their respective 2% and 3.75% key interest rates steady on Thursday, having both deliberately dampened bets of pre-emptive hikes over the last fortnight.
The shaky Iran war ceasefire has earned a bit of breathing space of sorts, but with oil already back above $100 again, money markets still anticipate both will have hiked twice before the year is out.
Optionality will be the watchword. ECB chief Christine Lagarde will be pressed on just how likely a pre-summer increase is. She certainly will not want a repeat of the hike-too-early error another French ECB chief, Jean-Claude Trichet, oversaw just before the eruption of the euro zone crisis.
For the BoE in London, Governor Andrew Bailey has already warned markets they are getting ahead of themselves and given how nervy domestic politics is making gilt markets, he is walking a tightrope too.
5/GOING SLOW
The Bank of Japan completes the list of major central banks in action. Its meeting on Tuesday will start the procession and, just like in the U.S. and Europe, what had appeared to be a window for a rate hike, now looks like another one to sit on its hands.
Sources have told Reuters Kazuo Ueda and co are likely to need more time to assess the fallout from the Middle East war, but observers expect them to leave the door wide open for a hike in June.
Some are worried that they may be getting behind the curve. Even the head of the Asian Development Bank has warned that the yen could come under further pressure if markets think the BOJ is being too slow given the inflationary risks.
For now the Japanese currency continues to languish near 160 to the dollar. That is a level investors have long viewed as a potential trigger point for FX market intervention. They are still waiting though.
(Graphics by Prinz Magtulis; Compiled by Marc Jones; Editing by Alison Williams)
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