Driven by hopes surrounding the presentation of a 15-point peace plan reportedly transmitted by the Trump administration to the Islamic Republic via Pakistani negotiators, European equity markets yesterday achieved a third consecutive gain—a performance unseen since the very end of February, just before the start of hostilities.

Although the U.S. President maintains that discussions are indeed taking place with Iran, Tehran asserts it has "no intention of negotiating," fueling fears of a prolonged conflict with a lasting economic and financial impact.

"Iran has every reason to avoid appearing cooperative publicly, as pressure on oil and financial markets is part of its negotiating leverage," notes Charu Chanana, Head of Investment Strategy at Saxo.

On the ground, the Israeli army says it has carried out large-scale strikes on Iranian soil, claiming to be responding to attacks conducted against the center of the country.

Persistent risks on the energy front

In this context, fears regarding the impact of a prolonged war accompanied by sharp tensions in the energy market—which could in turn weigh on inflation while slowing economic activity—seem to limit the possibility of any sustained return of risk appetite.

At the same time, the prospect of both the ECB and the Federal Reserve having to implement rate hikes to contain inflationary pressures is clearly not conducive to encouraging investors to return to the buy side.

In a note published yesterday, BofA analysts warned that oil prices had already entered a pivotal zone that could push the Fed to adopt a more restrictive monetary policy.

While recent days had been dominated by hope for a negotiated settlement to the conflict, the lack of signs of a breakthrough in negotiations between the belligerents after nearly a month of conflict is supporting the oil market, which is quietly resuming its upward trajectory.

Brent crude is up 2.2% near 104.5 dollars a barrel, while U.S. light crude (West Texas Intermediate, WTI) is gaining more than 2.1% at nearly 92.3 dollars.

Wall Street also caught in the diplomatic impasse

The caution displayed by Tehran in the face of signals sent by the United States is spilling over into Wall Street.

While Wednesday's session ended with a gain of more than 0.6% for the Dow Jones, 0.5% for the S&P 500, and 0.7% for the Nasdaq, futures on the main New York indices currently suggest a decline of around 0.3% to 0.4% at Thursday's open.

On the Tokyo Stock Exchange, the Nikkei index limited its decline to less than 0.3% today, but the trend is significantly weaker in China, where the CSI 300 dropped 1.3% late in the session.

This resurgence of risk aversion is unsurprisingly favoring a slight retreat in U.S. Treasury yields after their marked rise in recent weeks, fueled among other things by shifting expectations regarding monetary policy intentions for the coming months.

The ten-year Treasury yield is down more than six basis points below 4.33%.

The European bond market is following suit: the German ten-year is returning toward 3.95%, and French OATs are shedding 8.5 points to 3.64%.

The fading risk appetite is disadvantaging the euro, which is losing further ground against the dollar, breaking below the 1.16 threshold to around 1.1560.

While market sentiment remains primarily influenced by the geopolitical situation, investors will closely monitor U.S. jobless claims figures, due around lunchtime.