Strong US economy and conflict in the Middle East put markets on edge

Irish Central Bank governor Gabriel Makhlouf says ECB rate cut is still expected in June

The intensifying conflict in the Middle East and fears that a strong US economy could derail hopes of an interest rate cut in the near-term pushed global stock markets lower yesterday.

But Central Bank of Ireland governor Gabriel Makhlouf insisted again that the eurozone is “pretty close” to a point where interest rates in the bloc could be cut from June.

In Asia, stock markets closed yesterday with Hong Kong’s Hang Seng shedding 2.1pc and the Shanghai Stock Exchange sliding 1.65pc. In Japan, Tokyo’s Nikkei lost almost 1.9pc.

In Dublin, the Euronext All-Share Index was 1.3pc lower by mid-afternoon. By that stage, packaging giant Smurfit Kappa had declined 2.9pc, while Ryanair was 1.2pc lower. Insulation group Kingspan was down 1.7pc and Bank of Ireland had retreated 1.3pc.

Stock indices in the US struggled from the open yesterday, with both the Nasdaq and the S&P 500 in negative territory in the early morning. The Dow Jones had eked out a tiny gain, lifted by the results of health insurer UnitedHealth.

Irish building materials group CRH was 1.1pc lower while Paddy Power owner Flutter had advanced 0.6pc in New York.

In the United States, figures on Monday showed that American retail sales grew more than expected in March.

That followed jobs gains earlier in March and a consequent acceleration of consumer inflation. Figures yesterday showed production at US factories rose in March, boosted by motor vehicle plants.

That data has tempered hopes of any Fed rate cut by early summer, with September now seen by some economists as an alternative. Others, however, think the chances for a US rate cut this year are rapidly narrowing.

But Mr Makhlouf repeated his belief that a European Central Bank rate cut by June remains on the cards.

“We’ve got greater confidence that we can start to reduce the tightening in our monetary policy stance,” he told CNBC in an interview at the IMF spring meeting in Washington DC yesterday.

“I would expect, all things equal, that we will see a change in June – unless there’s something completely surprising and a shock that we don’t expect,” he added.

Mr Makhlouf said the Irish economy continues to perform well and is operating at capacity. He added that capacity constraints are an “internal risk” for Ireland.

“Employment participation rates are at the highest levels,” he said. “We’ve created 500,000 jobs in the last few years.

“But the whole geo-economic situation is something that, as a small and open economy, we worry about quite a bit. But it’s, you know... it’s an economy that’s doing well.”

The FTSE-100 was down almost 1.9pc as the afternoon progressed. Distribution giant DCC had declined more than 3pc, while sandwich maker Greencore had tumbled more than 4.3pc.

Oil prices have so far been little impacted by the turmoil in the Middle East, even after Iran’s unprecedented missile attack on Israel.

However, the International Monetary Fund believes that in an adverse scenario as a result of a broader conflict in the Middle East, oil prices could surge 15pc.

“The geo-economic situation is a thing that we in Ireland, as a small and open economy, worry about quite a bit”