Susannah Streeter, chief investment strategist at Wealth Club, examines the volatile mood in markets as the twists and turns of the Iran conflict continue to unsettle sentiment alongside mounting nerves over technology valuations and the SpaceX flotation.
Susannah Streeter, Chief Investment Strategist, Wealth Club
“Volatility is reigning as the twists and turns of the Iran war collide with fervour and apprehension about tech valuations and the looming SpaceX listing launch.
The FTSE 100 has clawed back ground after yesterday’s losses, the oil prices have experienced another waltzer ride. They had spun upwards after President Trump promised to hit Iran hard and now have dropped back after the US military said it had completed the latest round of action. Hopes are rising that talks can resume, but these repeated strikes and skirmishes hardly provide the bedrock of trust which negotiations need before significant progress can be made.
So Brent crude is still hanging around $92 a barrel, more than 30% higher than before the war began. The energy crunch and its insidious effect on inflation look set to see borrowing costs push higher. The European Central Bank is expected to lift rates by 0.25% to try to rein in some of the price rises across the economy before they become more embedded. But the risk is that frail growth will be knocked off course, so if they do vote for a hike, it’ll be followed by a wait-and-see pause.
Wizz Air has flown into severe turbulence with the cancellation of routes due to the war, adding to its operational difficulties. Even though its experienced record passenger growth, costs have escalated sharply and profits have gone into freefall. Net profit plunged to just €1.3 million from €213.9 million the year before. Wizz Air has chronic issues with Pratt & Whitney engines, which left 30 aircraft grounded at the end of the year, but more are now back in service. Despite the severe headwinds, investors are on board with a glass half full attitude, with shares lifting in early trade. Even though the airline refrained from giving guidance for the year, which is not surprising given the current geopolitical situation, it’s clearly making headway in dealing with its challenges. It’s refocusing on central and eastern European markets, where it’s snapped up more than a quarter of the market. With more aircraft back flying again, there’s hope that it can capitalise on high demand for travel and that its low-cost model has appeal when budgets are stretched.
The VIX, or so-called fear index, had hit levels not seen since early April as markets see-saw between pessimism and optimism. Wall Street is set to gain some ground after sharp losses yesterday sparked by inflation worries, and fresh geopolitical fears as well as uncertainty surrounding the upcoming mega IPOs.
The clock is ticking down to the mega SpaceX launch with the price of the initial public offering set to be revealed after the US market close on Thursday, June 11. Eager retail investors keen to buy into Musk’s extra-terrestrial ambitions will find out before the launch on Friday how many they’ll be allocated. SpaceX is targeting retail allocation of 30%, a much higher slice than a typical IPO.
Shares look set for a big pop as trading begins on the Nasdaq, given the frenzy surrounding the launch. Demand from investors is reported to be four times greater than the number of shares available in the offering. But it could trigger yet another wave of erratic buying and selling across the tech sector. We are already seeing some repositioning of portfolios as eager investors free up money to gain exposure.
Given there’s so much money riding on this IPO it could also influence broader market sentiment. A stronger, more durable debut may boost confidence in high-growth technology companies and encourage investors to increase exposure to related sectors across artificial intelligence and aerospace. But a disappointing start could spark off another spurt of profit-taking across the sector.
Given the volatility expected and concerns about the risks that could be ahead for Elon Musk’s ambitions in the space domain, investors should only moonwalk into this opportunity with caution and a well-diversified portfolio.”
