Market sentiment driven by the ceasefire deal is starting to fade. As Tehran warned that certain terms of the agreement have been violated, optimism regarding the US-Iran truce cooled, leading to falling stock markets and rising oil prices on Thursday.
On Wall Street, both S&P 500 futures and Nasdaq futures fell approximately 0.4% ahead of the trading session's opening. Meta Platforms Inc. outperformed other tech giants in pre-market trading. The social media giant released its highly anticipated artificial intelligence model, which analysts generally viewed positively.
The Europe Stoxx 600 index declined 0.6%, following a significant 3.7% surge on Wednesday after the ceasefire announcement.
Economic data indicates that the Middle East conflict is already impacting the European economy. Figures released by Germany showed an unexpected drop in industrial production for February, suggesting that Europe's largest economy was already weak prior to the outbreak of the Iran conflict and is heading toward another quarter of contraction.
In Asian markets, Japan’s Nikkei index fell 0.7%, after jumping 5.4% in the previous session. South Korean stocks dropped 1.6%, following a 6.8% surge. Emerging market equities declined nearly 1%.
Oil prices are recovering some of their recent losses.
Deadly Israeli strikes on Lebanon threaten to undermine the ceasefire agreement, while ongoing difficulties for oil tankers transiting the Strait of Hormuz are also weighing on the situation. Iran has informed mediators that it will limit the number of vessels allowed through the strait to approximately 12 per day and will charge a transit fee. These obstacles are dampening the momentum of yesterday's relief rally. During that session, global equities surged, and Brent crude fell more than 13%. This morning, Brent crude is reclaiming some lost ground, rising over 3% to trade above $98 per barrel.
Analysts at Goldman Sachs Group noted in a report that if the Strait of Hormuz remains closed for another month, the average price of Brent crude could exceed $100 per barrel throughout 2026.
Peter Kinsella, Head of Investment Services for the UK at Union Bancaire Privée, stated that these movements show markets are still trading on headlines, although volatility remains limited for most major currencies aside from the sharp swings in oil prices.
Kinsella said, "This is very difficult for investors because they are dealing with a conflict where even the participants themselves are unsure of what they want."
US and Iran accuse each other of violating the ceasefire.
Following a relief rally on Wednesday driven by the announcement of a two-week ceasefire, markets are now giving back some of those significant gains. US President Donald Trump pledged to maintain US military presence in the Persian Gulf ahead of talks with Iran, while Tehran warned of possible mines in the Strait of Hormuz.
Raphael Thuin, Head of Capital Market Strategies at Tikehau Capital in Paris, said, "There is a fair amount of skepticism in the market regarding the ceasefire and the upcoming negotiations. The big question is what state the global economy will be in after this crisis."
Both sides have accused the other of violating the ceasefire, with one core disagreement being whether the truce applies to Lebanon. The first round of direct US-Iran talks is scheduled for Saturday morning in Islamabad.
Helen Jewell of BlackRock suggested that as earnings season begins next week, expectations for corporate profits need to be revised downward due to the inflationary impact of the war. As International Chief Investment Officer for Fundamental Equities at the world's largest asset manager, Jewell stated, "If you look at the full-year earnings forecasts currently, they still call for double-digit growth—15%, 16%, 17%, 18%. There is still significant room for earnings expectations to be revised down."
Skylar Montgomery Koning, a Bloomberg macro strategist, commented, "After the market's understandable enthusiasm for the ceasefire yesterday, it's difficult to find a new catalyst today to push bonds and stocks higher. The longer the Strait of Hormuz remains closed, the weaker market confidence in this rally becomes."
The Federal Reserve is likely to hold steady.
US Treasury yields remained stable. The yield on the 10-year US Treasury note was largely flat at 4.29%, while the equivalent UK gilt yield rose 6 basis points; the previous day, UK gilt yields had fallen nearly 20 basis points.
Minutes from the Fed's last policy meeting, released on Wednesday, showed a growing number of officials believe interest rate hikes may be necessary to curb inflation, although many still expect the next move to be a cut. This tempered the rally in US Treasuries, which was more muted compared to the sharp gains seen in European bond markets on Wednesday. The 10-year US Treasury yield stood at 3.96% prior to the strike on Iran.
Later on Thursday, the Fed's preferred inflation gauge will provide a snapshot of pre-war price pressures. The Personal Consumption Expenditures (PCE) Price Index is scheduled for release at 8:30 AM Eastern Time. However, this data corresponds to February, so it is not expected to reflect the price pressures resulting from the conflict.
Analysts at JPMorgan stated in a report, "The committee widely agreed that it is too early to act, indicating the Fed is likely to remain on hold this year, which aligns with our view."
BlackRock cautions: US stock earnings expectations still have significant downside.
Helen Jewell of BlackRock recently expressed in an interview that corporate earnings expectations need to be lowered due to the inflationary impact of the Middle East conflict.
The International Chief Investment Officer for Fundamental Equities at the world's largest asset manager said during the interview, "Looking at the current earnings forecasts for this year, they still project double-digit growth—15%, 16%, 17%, 18%—so there remains considerable room for earnings expectations to be revised downward."
She also noted that predictions of stable earnings in the consumer sector are "hard to justify, especially considering interest rate levels and the inflationary impact from the Middle East situation." Signs are already emerging that optimistic earnings expectations are beginning to soften.
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