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Markets remain cautious as US-Iran talks show progress

Geopolitics remained in the spotlight as the US and Iran started negotiations to end the conflict in Switzerland. Global stock markets started the week with mixed feelings as oil prices steadied. In the UK, prime minister Keir Starmer resigned, less than two years after Starmer led his party to one of its biggest ever victories in a general election. ECB President Lagarde signalled a cautious approach to inflation risks. 

  • Date
  • Author Alessandro Fezzi, Content & Publications
  • Reading time 5 minutes

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US Vice President JD Vance said on Monday that negotiations with Iran in Switzerland had made significant progress, despite tensions after Tehran again moved to close the Strait of Hormuz in response to Israeli strikes on Lebanon. He said Iran had agreed to allow International Atomic Energy Agency inspectors back into the country, describing this as an important step towards curbing Tehran’s nuclear programme. Vance added that both sides had established a mechanism aimed at preventing a broader regional escalation and said work was still needed. Iranian Foreign Minister Abbas Araghchi also said the talks had produced major progress, although a final agreement has not yet been reached.

Oil steadies after Monday sell-off

Oil prices recovered slightly in Asian trading on Tuesday after a sharp drop on Monday, with Brent crude rising 0.3% to USD 78.10 a barrel and WTI gaining 0.4% to USD 74.18. The rebound followed a near 3% fall as traders reacted to progress in US-Iran peace talks and a 60-day US licence allowing sales and imports of Iranian crude, which raised expectations of higher global supply in the coming weeks. Prices had surged above USD 120 during the conflict when disruption in the Strait of Hormuz threatened shipments, but easing transit risks and diplomatic momentum have since reduced the geopolitical premium. The modest move higher on Tuesday appeared mainly technical, while investors continued to watch whether the negotiations can hold and how quickly Iranian exports recover.

In Tokyo, the Nikkei 225 fell 2.5% on Tuesday, and in Hongkong the Hang Seng lost about 1.6%. South Korea’s Kospi slumped more than 6% on Tuesday as chipmakers SK Hynix and Samsung Electronics came under heavy pressure.

Gold prices rebounded as US-Iran peace talks progressed; however, the outlook for US monetary policy following the Federal Reserve’s hawkish signals last week limited gains.

Mixed feelings on Wall Street 

On the New York stock exchange US equities ended mixed on Monday, with the Dow Jones Industrial Average edging up 0.3% to 51,712.71 points, while the S&P 500 fell 0.4% to 7,472.79 and the Nasdaq 100 slipped 0.2% to 30,347.08. The Dow was supported by lower oil prices after encouraging signals from US-Iran talks, but technology shares came under pressure as investor enthusiasm for artificial intelligence weakened. Chipmakers remained in demand, with Intel rising more than 5% and Micron gaining almost 7% ahead of quarterly results due on Wednesday, while Amazon, Microsoft and Google parent company Alphabet fell as concerns grew over weak returns on heavy AI spending.

Burnham leads UK leadership race after Starmer’s resignation

Andy Burnham strengthened his position in the race to become the UK’s next prime minister after winning a parliamentary seat last week and launching his Labour leadership bid on Monday following Keir Starmer’s resignation announcement. Burnham has argued that he is best placed to reconnect Labour with voters and challenge Nigel Farage’s Reform UK, which has topped opinion polls since early last year. Supporters cite his record as Greater Manchester mayor and his push for greater regional autonomy, while critics say his policy positions have shifted repeatedly over time. If he secures the leadership, Burnham will still need to set out a clearer programme and show he can govern despite the UK’s fiscal constraints.

ECB urges measured response

European Central Bank (ECB) President Christine Lagarde argued on Monday for a measured response to inflation risks stemming from the Iran war. She said the central bank could not ignore the resulting price pressures but added there were still no signs of inflation expectations becoming unanchored or of second-round effects that would justify a stronger policy response. The ECB raised its key deposit rate by 0.25 percentage points to 2.25% at its latest meeting. Lagarde also said policymakers would continue to act on a meeting-by-meeting, data-dependent basis, while the euro came under pressure on Monday.
 

Corporate and economic calendar

Corporate news in focus: There is no major corporate news scheduled today.

Economic data in focus: Japanese Purchasing Managers’ Index (02:30), French Purchasing Managers’ Index (09:15), German Purchasing Managers’ Index (09:30), euro-area Purchasing Managers’ Index (10:00), UK Purchasing Managers’ Index (10:30), US ADP National Employment Report (14:15), US Purchasing Managers’ Index (15:45), Richmond Fed Manufacturing Index (16:00).

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Publisher: LGT Bank (Switzerland) Ltd., Glärnischstrasse 36, CH-8027 Zurich
Editor: Alessandro Fezzi
Source: LGT Bank (Switzerland) Ltd.