“Some of the worst mistakes of my life have been haircuts” Jim Morrison

After an encouraging start to the week on Monday, stocks fell away as Apple announced a hiring freeze and IBM results, although in line with expectations, put a damper on with a muted outlook. On Tuesday the rally held as Johnson and Johnson beat both earnings and revenue forecasts, but warned the impact of the strong dollar will lead to reducing guidance for the coming months. The CEO did add that should the dollar weaken that guidance would change. That would suggest the underlying business remains resilient. Nasdaq had a particularly good day as Netflix, so much under the cosh this year reported a better number than analysts expected. A weakening dollar over the past few days will likewise have improved sentiment.

Just over 10% of US companies have reported earnings, and so far so good, but there is a long way to go. The strong dollar theme is likely to be a feature amongst many of the globally diversified industries.

Oil prices have come back below levels before Russia invaded Ukraine which has offered some hope that inflationary pressures may ease. As Putin travels to the Middle East to meet the Iranian and Turkish leaders, hot on the footsteps of Joe Biden exiting the region has met with leaders of Israel and Saudi. Could this be the next potential geopolitical risk? In 2015 when Iran agreed to stop its nuclear program and the West, with the support at the time of Russia and China, offered sanctions relief. As a result, the Iranian economy recovered. The Republicans pulled out of the deal in 2018 and Biden now wishes to reinstate the agreement.

Is Iran likely to sign up again, once bitten twice shy? At best BCA put the odds at 50/50 and should Iran look to produce a nuclear weapon, there is a possibility that tensions will rise in the region. On leaving Jerusalem a joint declaration from the two reiterated the strong bond between America and Israel. As much as Putin’s impact has had on oil prices, a Middle East conflict could be far more dangerous to the global economy.

Closer to home there are three candidates left to challenge for the leadership. As much as Rishi stands out as the candidate wanting to hold back on tax cuts, the Bank of England will force the next leader’s hand. We have said on more than one occasion the balance of monetary and fiscal policy is wrong, and that is what is hurting the pound. So far the Bank of England and Andrew Bailey have been criticised for their tardiness in raising rates. Today Andrew Bailey steered markets to expect a 50 basis point rise at the next meeting and one suspects they are unlikely to stop there. The clamour for higher rates and having this compensated for by lowering the tax burden will only increase.