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Markets caught between fear of further escalation and ceasefire hopes

Asia stocks edge lower on the background of heightened uncertainty about the further development of the Iran war. Wall Street gave back part of its early advance on Wednesday as Iran rejected a US-backed ceasefire proposal, keeping investors focused on the uncertain outlook for the war. ECB President Lagarde stressed that the central bank might be forced to tighten due to a possible inflation overshoot, even if short lived. 

  • Date
  • Auteur Alessandro Fezzi, Content & Publications
  • Temps de lecture 5 minutes

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Asian equity markets traded in a narrow, mostly negative range on Thursday as investors weighed mixed signals over a potential ceasefire in the US‑Israel war on Iran and a rebound in oil prices. Iran said it was reviewing a US 15‑point ceasefire proposal but reiterated it would not hold direct talks with Washington, while the conflict entered its fourth straight week and the Strait of Hormuz remained effectively blocked, disrupting around 20% of global oil and gas supply. South Korea’s KOSPI led regional losses, falling as much as 3% as memory chip makers Samsung Electronics and SK Hynix dropped 4% and 5%, respectively, on concerns that Google’s new "TurboQuant" compression technology could curb artificial‑intelligence‑driven demand for advanced memory. Japanese indices Nikkei 225 and TOPIX slipped after reports that Tokyo had begun releasing about 80 million barrels of oil from strategic reserves to counter war‑related supply shocks, while other major markets such as Australia, mainland China and Hong Kong also declined and Singapore’s Straits Times index modestly outperformed with a 0.4% gain.

US equities rise on Iran ceasefire hopes

In New York stock indices extended their rebound on Wednesday as renewed prospects for an end to the Iran war lifted sentiment, though major benchmarks surrendered part of their intraday gains amid conflicting statements from the conflict parties. The Dow Jones Industrial Average closed 0.7% higher at 46,429.49 points, the broad S&P 500 added 0.5% to 6591.90 points and the technology-heavy Nasdaq 100 advanced 0.7% to 24,162.98 points, while oil prices for Brent crude briefly fell below USD 100 per barrel before moving back above that level. 

US import prices signal rising inflation pressure 

Prices of import goods in the US rose 1.3% in February, the biggest monthly increase since March 2022, after an upwardly revised 0.6% in January, driven mainly by surging energy costs ahead of the Middle East conflict. In the 12 months through February, import prices advanced 1.3%, the largest year-on-year increase since February 2025, following a 0.3% increase in January. 

ECB flags possible response to energy‑driven inflation

ECB President Christine Lagarde signalled on Wednesday that even a temporary overshoot of the central bank’s inflation target due to the current energy shock could justify "measured" policy tightening. While the ECB left rates unchanged last week, Lagarde warned that ignoring a sizeable, even if short‑lived, rise in inflation might undermine the bank’s credibility and risk de‑anchoring expectations. She noted that the ECB is closely watching for early signs that higher energy prices are feeding through into wages and underlying inflation and stressed that the stronger and more persistent any deviation from target becomes the more forceful the policy response would need to be. At the same time, she argued that today’s backdrop differs from the 2021–2022 surge, with a smaller energy shock, a less tight labour market, no post‑pandemic demand overhang, tighter fiscal policy and higher starting interest rates all pointing to a more limited pass‑through than in the past.

In a new Reuters poll most economists still expect the ECB to keep its deposit rate at 2% through 2026, even though over a third now see at least one hike after the war‑related energy shock pushed inflation forecasts higher. Markets are pricing in around three increases by year‑end, but many forecasters argue the current situation differs from 2022 as rates are closer to neutral, quantitative tightening is under way and underlying inflation has already fallen back to around 2%, giving the ECB somewhat more room to look through the shock.

The Eurozone's benchmark index, the EuroStoxx 50, rose by 1.2%. In Zurich, the benchmark SMI index closed up 1.62% on Wednesday at 12,718.36 points, after fluctuating within a fairly narrow range around the 12,700-point mark throughout the day. The broad SPI index stood at 17,742.64 points at the close of trading, representing a gain of 1.55%.

UK inflation steady but pressure is building

British consumer price inflation held at 3% year-on-year in February, unchanged from January and in line with economists’ expectations, remaining at its lowest level since March last year. The Bank of England now sees inflation climbing towards 3.5% by mid-year amid higher energy costs linked to the Middle East conflict. A survey earlier this week showed a marked rise in inflation expectations among households, while manufacturers reported the sharpest increase in costs since 1992, suggesting further price pressures could be passed on to consumers when new energy tariffs take effect in July. Financial markets are currently pricing in nearly three quarter-point rate increases by the BoE this year, although many economists expect the central bank to keep policy on hold given the drag on growth, and Governor Andrew Bailey has cautioned against assuming that rate hikes are certain.

Corporate and economic calendar

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

Economic data in focus: German GfK Consumer Climate (08:00), France Business Survey (08:45), Spanish gross domestic product (09:00), euro-area M3 money supply (10:00), euro-area private sector loans (10:00), Italian Business and Consumer Sentiment (10:00), Bundesbank monthly report (12:00), US weekly initial jobless claims (13:30).

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

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