Global financial markets experienced sharp swings as investor sentiment shifted rapidly in response to developments in the Middle East. An initial wave of optimism drove equities higher, but this momentum faded as uncertainty around the conflict’s trajectory re-emerged, highlighting the fragility of current market conditions.
Market Rally Followed by Reversal
Equity markets rallied strongly on Wednesday in a broad-based risk-on move, supported by growing optimism that de-escalation in the Middle East could be within reach. Comments from Donald Trump indicating the U.S. may exit the Iran conflict “pretty quickly” helped lift sentiment.
Asian markets led gains, with South Korea surging 9% and Japan rising 5%. In Europe, the STOXX 600 climbed 2.5% and the FTSE 100 added 1.8%. On Wall Street, the S&P 500 gained 0.7% and the Nasdaq advanced 1.2%, contributing to the strongest two-day rise in the MSCI World index since last April.
The rally was accompanied by falling oil prices and a softer U.S. dollar, reflecting reduced near-term concerns about disruption to the Strait of Hormuz. Cyclical sectors, including industrials, materials, and technology, led gains, while energy shares lagged notably.
However, this positive tone reversed overnight. Trump’s televised address failed to provide clear guidance and suggested military action could persist for several more weeks. This lack of clarity prompted a shift back towards caution, with U.S. and European futures moving lower and Asian markets declining, reversing part of Wednesday’s strong gains.
Oil prices rebounded, the U.S. dollar strengthened, and concerns around higher energy costs and stagflation re-emerged, underscoring the sensitivity of markets to geopolitical developments.
Regional Market Performance
Asia
Asian equities fell sharply on Thursday as Donald Trump signalled an escalation in the Iran conflict, reversing gains from earlier in April. South Korea’s KOSPI dropped 3.7%, Japan’s Nikkei 225 fell 2%, while China’s CSI 300 and Hang Seng declined 0.7% and 1%. Rising oil prices and ongoing Strait of Hormuz disruptions heightened inflation concerns, dampening regional investor sentiment.
United States
U.S. equity futures declined notably following Donald Trump’s comments signalling an escalation in military action against Iran over the next two to three weeks.
- S&P 500 futures fell 0.8% to 6,566
- Nasdaq 100 futures dropped 1% to 23,966
- Dow Jones futures declined 0.7% to 46,499
The move reflects increased geopolitical risk.
Europe
European shares extended a strong rally, with the STOXX 600 rising 2.5%. Gains were led by defence (+5.9%) and banks (+4.5%). Airline equities, including Air France and Lufthansa, jumped on falling oil prices.
At the stock level, Babcock International rose 9.5%, while Greek shares gained 3.4% ahead of MSCI index inclusion, reflecting easing Middle East tensions and market optimism.
Key Asset Classes
Oil
Oil prices surged in Asian trading on Thursday after Donald Trump warned the U.S. would strike Iran “extremely hard” over the next two to three weeks.
- Brent crude rose 4.2% to $105.41 per barrel
- WTI gained 3.6% to $103.68
This marked a reversal from earlier losses amid heightened geopolitical tensions.
U.S. Dollar
The U.S. dollar rebounded in Asian trading after Donald Trump signalled further escalation in the Middle East conflict, prompting a shift toward safe-haven assets. The US Dollar Index rose 0.3%, while the euro weakened to $1.156. Renewed geopolitical uncertainty and higher oil prices supported the greenback’s gains against major Asian and European currencies.
Economic Data
Recent U.S. economic data showed continued resilience in March 2026:
- ISM Manufacturing PMI rose to 52.7, marking the strongest factory growth since August 2022
- Retail sales increased 0.6%, led by department and clothing stores
- ADP reported 62,000 private jobs added, driven by education, health services, and construction, despite weakness in trade and manufacturing
Geopolitical Developments
Donald Trump said the U.S. will intensify operations against Iran over the next two to three weeks while continuing negotiations. He threatened to strike electricity infrastructure if no deal is reached, stressed preventing nuclear capability, claimed Iran’s naval and missile forces were weakened, suggested regime change progress, and urged other nations to secure the Strait of Hormuz.
Additional Developments
Four astronauts, three from NASA and one from the Canadian Space Agency, launched from Florida on Wednesday aboard NASA’s Artemis II mission, the first crewed lunar test flight in 53 years. The SLS rocket and Orion capsule will carry them around the moon and back, testing spacecraft systems and paving the way for a planned South Pole lunar landing by 2028.
Equities on the Move
SpaceX
SpaceX has confidentially filed for a U.S. IPO with the Securities and Exchange Commission, aiming for a June listing. The move could raise $75 billion at a $1.75 trillion valuation, surpassing records set by Saudi Aramco and Alibaba. Elon Musk may become the first trillionaire. He currently holds about 42% equity and 80% voting control globally.
Eli Lilly
Eli Lilly received FDA approval for its weight-loss pill, Foundayo, becoming the second oral obesity treatment after Novo Nordisk’s Wegovy. The once-daily pill, priced at $149, strengthens its position in the obesity market, directly competing with injectables like Mounjaro and Zepbound and expanding patient treatment options.
U.S. Drug Tariffs
The Trump administration plans to impose tariffs as early as today on drugmakers that have not agreed to guarantee low U.S. prices, Bloomberg reported. Proposed measures could include a 100% tariff on imported branded and patented medicines. Pfizer and AstraZeneca have secured exemptions, while others like Eli Lilly, Johnson & Johnson, and Merck expand U.S. operations.
Goldman Sachs
Goldman Sachs warned markets are overestimating the likelihood of Federal Reserve rate hikes in 2026 despite rising oil prices from the Iran war. Analyst Manuel Abecasis cited a contained supply shock, soft labour market, anchored inflation expectations, and tighter financial conditions, arguing the Fed is unlikely to tighten as aggressively as traders expect.
Morgan Stanley
Morgan Stanley has turned bullish on European equities, seeing 12% upside as Middle East tensions ease. It favours Utilities, Defence and Energy as long-term plays, with Banks and Semiconductors for short-term gains. The bank expects oil near $90 to support earnings growth and sees markets eventually refocusing on AI-driven themes despite geopolitical risks.
Bank of America
Bank of America expects oil near $100 per barrel through 2026 due to disruption from the Iran war. It forecasts slower global growth, higher inflation, and delayed rate cuts by central banks including the Federal Reserve. A worse scenario could push oil above $150, risking global recession and heightened market volatility.
Nike
Nike was downgraded to Neutral by analysts at JPMorgan and Bank of America following disappointing results. Both cut price targets and trimmed fiscal 2027 to 2028 EPS forecasts, citing delayed growth, ongoing weakness in Greater China, and softness in Sportswear, pushing expectations for a 10% operating margin to fiscal 2029.
UnitedHealth Group
Raymond James upgraded UnitedHealth Group to Outperform with a $330 target, citing AI initiatives and margin improvements at Optum Health as key earnings drivers. EPS estimates for 2027 to 2028 were raised above consensus, reflecting G&A savings, higher FFS margins, and operational efficiencies, while shares trade at a discount to historical multiples.
Western Digital
Bernstein upgraded Western Digital to Outperform, raising its price target to $340. Analyst Mark Newman said the recent 21% pullback over Google’s TurboQuant algorithm was overdone, with HDD demand unaffected. Optimism is supported by AI-driven storage growth, ePMR technology, and strong sector fundamentals.
Citi / European Defence
Citi upgraded Leonardo to Buy following recent share price declines, citing manageable growth expectations. Saab remains a Sell, as profit growth assumptions are considered unrealistic. Rheinmetall was initiated at Neutral, with caution over its Weapons division, which may face declining demand after the Ukraine conflict.
Upcoming Data and Events
Today’s key economic data includes:
- A speech by Fed’s Logan
- March Challenger job cuts
- Initial and continuing jobless claims
- February trade figures covering exports, imports, and goods balance
- EIA natural gas stocks and Baker Hughes rig counts
- Treasury auctions, mortgage rates, and the Fed balance sheet update
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