Markets Catch Their Breath as Weekend Diplomacy Beckons

Markets Stabilize as US-Iran Diplomacy and Ceasefires Boost Global Hopes

Global Market Reactions to US-Iran Developments

A look at the day ahead in European and global markets from Ankur Banerjee

Oil Prices and Geopolitical Tensions

Markets slipped into TGIF mood as the possibility of a deal between the U.S. and Iran lifted hopes and kept oil below $100 a barrel, though with the crucial Strait of Hormuz still mostly closed the risk of a resumption in hostilities is never far off.

Diplomatic Efforts and Investor Sentiment

Investors are increasingly choosing to lean into U.S. President Donald Trump's optimism that an end to the war is in sight after he said the next round of talks could happen over the weekend.

Impact on the Global Economy

The conflict, which erupted on February 28 with U.S.-Israeli strikes on Iran, has sparked an energy shock, forcing the International Monetary Fund to downgrade its outlook for the global economy.

European Market Outlook

The fighting has also clouded the outlook for European firms from airlines to retailers, despite hopes for robust first-quarter earnings. Higher energy prices, supply-chain disruption and slower growth are already feeding into gloomy forecasts.

Stock Market Recovery and Ceasefires

Markets were rocked in March as investors scurried for the safety of the U.S. dollar but a two-week ceasefire in early April and signs of a peace deal unleashed a blistering risk-on rally.

Most major stock bourses have clawed their way back to pre-war levels, while the dollar has handed back its safe-haven gains. Sentiment got another lift after a 10-day ceasefire between Lebanon and Israel came into force on Thursday.

Short-Term Market Movements

By Friday, however, traders were tapping the brakes ahead of yet another make-or-break weekend, with European futures pointing to a subdued open and Asian stocks lower on the day but poised for a strong weekly increase.

US Market Performance and Currency Trends

Over in the U.S., stocks have stormed back to record highs after the Iran war-driven selloff in March, with signs suggesting the rally has further to run.

Commodities and Currency Shifts

Beyond the U.S. dollar, the war is also a fresh reminder of how commodities are reshaping geopolitics - a shift that's leaving currencies like the Norwegian krone, Canadian dollar and the Aussie and Kiwi dollars well positioned to outperform their bigger peers.

Yen and Central Bank Policy

The yen, on the other hand, is back hovering close to the 160 per dollar level though the threat of intervention looks less urgent than before. Investors were pondering comments from Bank of Japan Governor Kazuo Ueda, who steered clear of signalling a rate hike was on the cards this month.

Key Events to Watch

Key developments that could influence markets on Friday:

Euro zone trade balance for February.

(By Ankur BanerjeeEditing by Shri Navaratnam)