Supported by defense stocks and a generally solid earnings season, most European markets reached new all-time highs this week. In Paris, the CAC index – currently showing weekly gains of around 1% – reached an all-time closing high of over 8,429 points on Wednesday evening. This performance underscores the resilience of European equities despite ongoing geopolitical concerns.
The final trading session of the week was expected to provide investors with greater clarity on the global economic outlook, thanks to a series of key statistics, but it appears markets will likely proceed with caution given the escalating tensions between the United States, and Iran.
The escalating tensions in the region risk curbing investor initiatives, particularly as the White House reportedly dispatched two aircraft carriers off the coast of Oman and Tehran and Moscow began joint military maneuvers Thursday to protect their commercial vessels, which Western armies regularly accuse of circumventing oil sanctions.
Adding to the uncertainty, Donald Trump issued new threats Thursday, promising “very unpleasant things” would happen if Tehran did not offer constructive progress on the nuclear issue, hinting at potential strikes on Iranian facilities over the weekend.
“What weighs most on market sentiment is that, unlike the targeted strikes that hit Iran last year or the capture of Venezuelan President Maduro in January, a U.S. Military intervention in Iran would likely aim for regime change, raising fears of a prolonged military campaign,” explained Michael Brown, a strategist at Pepperstone. This assessment highlights the potential for a more extensive and destabilizing conflict than previously anticipated.
Against this tense backdrop, investors are preparing for a flurry of key economic data releases.
Market participants are hoping that the purchasing manager indices (PMI) expected in the morning will confirm the recent improvement in economic activity within the Eurozone.
In the United States, the Personal Consumption Expenditures (PCE) price index, the Federal Reserve’s preferred measure of inflation, will be closely watched to better anticipate the evolution of the central bank’s monetary policy trajectory.
U.S. GDP figures, also expected at 2:30 p.m., are projected to show continued strong growth in the fourth quarter, with a consensus estimate of around a 3% increase.
After three consecutive sessions of gains, the New York Stock Exchange finished mixed Friday, with the Dow Jones losing more than 0.5% at the close. The S&P 500 fell 0.3% while the Nasdaq contracted 0.4%.
Amid escalating tensions in the Middle East and speculation about the timing of future Fed rate cuts, yields are easing slightly, with the ten-year Treasury returning towards 4.07%.
In Europe, the yield on the ten-year German Bund, a benchmark for the Eurozone, remained frozen for the second consecutive session, around 2.75%, as did that of French OATs at 3.31%.
With the return of geopolitical tensions, the dollar appears to be regaining its status as a safe-haven currency, rising 0.1% against the euro, which is falling back towards 1.1760.
However, the main risk to watch remains the price of oil, which could rise further in the event of a U.S. Attack on Iran, or if Tehran decided to block the Strait of Hormuz, which carries about a quarter of the world’s oil trade and 20% of liquefied natural gas supplies.
With fears of a disruption to crude oil supplies, oil prices are sharply higher Friday morning. Brent crude is up 0.5% to $72 a barrel and West Texas Intermediate (WTI) is gaining 0.9% to over $67 a barrel, the highest level since August.
Market volatility could also be exacerbated by the anticipated decision of the U.S. Supreme Court on the legality of tariffs, although this could, as in January, be postponed again until next month.
