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Markets cling to de-escalation hopes

US equities on Wall Street retreated again amid ongoing uncertainty in the Middle East. According to media reports, the US has sent Iran a 15-point plan to end the war, but the regime in Tehran has so far still denied direct talks with Washington. In Asia, stock markets mostly rose on the backdrop of lower oil prices and peace hopes. Meanwhile, business sentiment weakened in the US and Europe according to latest PMI surveys that point to a combination of slower growth and rising inflation. 

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

Middle East financial markets
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Asian equity markets advanced on Wednesday, supported by a more than 6% fall in Brent crude, which slipped below USD 100 per barrel on reports that the US had sent Iran a 15-point peace proposal aimed at ending the war. Japanese stocks led gains, with the Nikkei 225 up nearly 3% and the broader TOPIX 2.3% higher, while South Korea’s Kospi climbed 1.7% and India’s Nifty 50 added 1.3%, as lower energy prices eased concerns about inflation and aggressive monetary tightening. Sentiment was further buoyed by comments from US President Donald Trump that Washington was in negotiations with Iran and that Tehran was “talking sense”, even though Iranian officials publicly denied that talks were taking place. In Australia, February headline consumer price inflation edged down to 3.7% year-on-year from 3.8%, reinforcing expectations that the Reserve Bank of Australia will move cautiously on any policy easing, and the S&P/ASX 200 rose 2%, while key Chinese and Hong Kong equity benchmarks also posted gains of about 1% or less.

Sentiment on Wall Street remains cautious 

US stock indices gave back some of their recent gains on Tuesday, with the Dow Jones Industrial closing 0.2% lower at 46,124.06 points and the broad S&P 500 falling 0.4% to 6556.37 points, while the technology-heavy Nasdaq 100 slipped 0.8% to 24,002.45 points. Hopes for a de-escalation in the conflict between the US and Iran, which had been fuelled by President Trump’s comments on Monday, faded as continued fighting and additional US troop deployments to the region reignited investor caution. Market observers highlighted the risk that a prolonged conflict in the Middle East, potentially including Saudi Arabia as an active party, could drive inflation higher and lead to rising interest rates, weighing on the relative appeal of equities versus fixed income. In sector moves, solid semiconductor stocks contrasted with sharp falls in software names amid fresh concerns about artificial intelligence competition and US regulators plan to restrict imports of certain foreign Wi-Fi routers. 

PMI points to slowing US business growth as Iran war lifts costs

US business activity expanded at the weakest pace in eleven months in March, according to flash survey data from S&P Global. Companies faced heightened uncertainty and higher living costs linked to the nearly month-old war in Iran. The composite purchasing managers’ index (PMI) slipped to 51.4 from 51.9 in February, with services activity easing to 51.1 from 51.7 while manufacturing output strengthened modestly as the sector’s PMI edged up to 52.9. S&P commented the data point to an “unwelcome combination” of slower growth and rising inflation. The survey suggested that average input costs rose at the fastest rate in ten months and selling prices increased at the quickest pace since August 2022, which could complicate the Federal Reserve’s policy choices after it left interest rates unchanged last week amid uncertainty over the war’s duration and its effects on inflation and global supply chains.

European stock indices edge higher amid war uncertainty

Major equity markets in Europe extended their stabilisation on Tuesday, with the euro area benchmark EuroStoxx 50 adding 0.1% to 5581.29 points and the Swiss SMI rising 1% to 12,515.94 points helped by defensive heavyweights Nestle and Novartis. Investor sentiment remained fragile as the crisis in the Middle East continued to develop. Within the Stoxx Europe 600, oil and gas stocks led gains alongside telecom, chemical and basic resources names. 

Business sentiment drops sharply in the euro-area…

Business sentiment in the euro area weakened more than expected in March as companies felt the impact of the war involving Iran and sharply higher energy prices, according to flash purchasing managers’ survey data released by S&P Global on Tuesday. The composite purchasing managers’ index fell by 1.4 points to 50.5, remaining only marginally above the 50-point threshold that separates expansion from contraction, compared with economists’ expectations for a smaller decline to 51. While sentiment in manufacturing improved unexpectedly, the services index dropped markedly to just above the expansion threshold. 

…and in the UK

In the United Kingdom Business activity grew at the weakest pace since September in March as the war involving Iran pushed up costs sharply, according to preliminary purchasing managers’ data. The composite PMI, covering manufacturing and non-retail services, fell to 51 from 53.7 in February, remaining above the 50 threshold that separates growth from contraction but undershooting forecasts. 

German business pessimism deepens on trade strains

German companies had already turned more downbeat about their international business before the recent war involving Iran, according to a survey from the German Chamber of Industry and Commerce (DIHK) published on Tuesday. The poll, conducted in early February, showed that 69% of firms said trade barriers were hurting the profitability of their foreign operations, 11% more than a year earlier and the highest share since 2005, with 21% expecting a deterioration in business over the coming year compared with 16% anticipating an improvement. Rising global barriers combined with stricter regulation in Europe were putting German firms under “double pressure”, DIHK stated. 

Corporate and economic calendar

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

Economic data in focus: Bank of Japan monetary policy meeting minutes (00:50), Australian Consumer Price Index (01:30), UK Consumer Price Index (08:00), Germany’s ifo Business Climate Index (10:00), Bundesbank monthly report (12:00), SNB Quarterly Bulletin (15:00).

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