As the world watches the unfolding situation between the US and Iran, global markets have responded with a mix of relief and caution. According to a report by The Guardian, the Dow Jones industrial average has jumped by 2% or 928 points to 46,505 points, following Donald Trump's decision to extend by five days his deadline to “hit and obliterate” Iran’s power stations and energy infrastructure.
Construction equipment firm Caterpillar, manufacturing conglomerate 3M, and DIY chain Home Depot are leading the risers, with the broader S&P 500 share index up 1.9%. Investors are relieved that Trump has extended his deadline, claiming that the US and Iran have held “very good and productive conversations” on an end to the three-week-old war.
However, experts warn that the situation remains fluid. George Lagarias, chief economist at Forvis Mazars, advises investors to respond only to verified facts, saying, “The volatility of asset prices faithfully mirrors the volatility of events in the Middle East, including competing, and conflicting, statements from Washington and Tehran.”
Market Analysis
Consultancy Oxford Economics predicts that the strait of Hormuz will remain impassable until May, despite Trump's comments. Their analysis, written by Bridget Payne, Head of Oil and Gas Forecasting, and Jack Reid, Oil and Gas Economist, reads, “The temporary postponement of US military strikes in an effort to reach a deal does not materially change that assumption, though it does shift risks to the downside.”
Robert Pavlik, senior portfolio manager at Dakota Wealth, notes that the market's reaction is reminiscent of the turmoil almost 12 months ago, saying, “This is the same type of thing that happened after Liberation Day.”
Global Market Reaction
Most European stock markets posted gains, with Germany's DAX closing 1.2% higher, France's CAC 40 gaining 0.8%, and Spain's IBEX rising by 1%. AJ Bell head of markets Dan Coatsworth comments, “Today saw the market perform ‘a handbrake turn with juddering speed after President Trump suggested the US and Iran were close to ‘total resolution’ on their weeks-long conflict.”
However, Coatsworth adds that significant uncertainties remain for investors to pick through, saying, “The Iranian regime has refuted the idea of dialogue with the US, and, even assuming a deal can be agreed, questions of how and when the Strait of Hormuz will be unblocked and how quickly shipments through this strategically important body of water can get back to pre-war levels will remain.”
Economic Implications
Eurozone consumer confidence has fallen to its lowest level since late 2023, with a European Commission survey showing a drop to -16.3 this month from a revised -12.3 in February. Andrew Kenningham at Capital Economics notes, “The four-point drop in March is one of the largest falls on record other than at the start of the pandemic and the Ukraine conflict.”
Kit Juckes, chief FX strategist at French bank Société Générale, explains that orthodox macro-economic models argue in favor of tightening monetary policy, even though higher energy costs are a tax on consumers. Juckes says, “Market participants know that this is what happens and are pricing in ECB and BOE hikes by June, with a second hike by September.”
Expert Insights
Matthew Amis, investment director at Aberdeen, says Trump's statement is the circuit breaker that markets needed, adding, “The selling has stopped for the time being after a very weak start to the week. European sovereign markets, as you would expect, are reacting positively to the Trump headlines, despite the Iranian pushback.”
However, Amis notes that to materially unwind the moves of the last few weeks, they would need to see more than words and clear action, namely ships moving through the Straits of Hormuz. An Israeli source has told Sky News to take Donald Trump's announcement “cautiously, with a grain of salt,” saying, “It's early Monday morning in the US, the start of the trading week.”
