MARKET WRAPS
Stocks:
European shares were in positive territory again Thursday after stalling at the open, extending the previous session's gains as investors get more comfortable with added risk from fighting in the Middle East.
Israel said it had launched another wave of large-scale strikes on Tehran and struck Hezbollah command centers in Beirut. Iran countered with missiles.
The energy sector was leading Stoxx 600 and FTSE 100 gains on rising oil and gas prices. Attacks on critical infrastructure and the effective closure of the Strait of Hormuz continued to threaten global supply.
Jefferies said investors could consider adding risk to their portfolios.
"We are not ready yet to sound the all clear for markets as we still believe that the tail risk of something drastic is high.
"But we would be looking to selectively add risk over the coming days."
European Central Bank Vice President Luis De Guindos said markets were reacting to the conflict in an orderly fashion. But he warned the fighting had increased the level of uncertainty for Europe's economy .
Meanwhile, French industrial production rebounded in January, helped by a bump in transport output.
Earnings season rolls on with Universal Music and Prada set to report later today.
Economic Insight
The European Central Bank isn't expected to lower interest rates in 2026, Morgan Stanley said.
Instead, it will cut rates twice in June and September 2027 , according to the investment bank.
TD Securities said it will be "complicated" for the Federal Reserve to cut interest rates.
The investment bank said that a 25% surge in WTI would translate to an approximately 0.5 percentage point increase in headline CPI.
U.S. Markets:
Stock futures were higher, following through on advances in the previous session. Investors appear hopeful that a broadening Middle East conflict could be brief and relatively contained.
Forex:
The dollar rose after stronger-than-expected U.S. economic data further reduced the prospect of more Fed rate cuts.
Wednesday's data came amid rising energy prices stemming from the Middle East conflict which have prompted markets to scale back rate-cut bets due to the potential for higher inflation.
The euro was trading flat against the pound. ING said sterling's recent outperformance against the euro reflected positioning adjustments but its gains were unlikely to last
Bonds:
The 10-year Treasury yield hit a three-week high in Asian trade before retreating as investors kept focus on the inflationary impact of the Middle East war.
That said, Treasurys were close to fair value and are an important tool in overall portfolio strategy, Russell Investments said.
Danske Bank said eurozone government bond investors appeared to have resumed buying after a selloff prompted by inflationary worries arising from the Middle East conflict.
"It seems investors are looking for trades that fade the recent rise in yields."
Auctions from Spain and France arrive today against a backdrop of somewhat improved sentiment .
"Market sentiment seems to be stabilising tentatively but remains dependent on developments in Iran and the European Central Bank reaction function," Commerzbank said.
Gilt yields rose as inflation concerns resurfaced due to higher oil prices.
Energy:
Oil extended gains with global supply threatened by attacks against critical infrastructure and maritime traffic through the Strait of Hormuz almost fully stopped.
The effective closure of the vital waterway has trapped roughly a fifth of the oil the world consumes daily, forcing some producers to start curtailing production as storage tanks fill with stranded crude.
Gas
European natural-gas prices climbed after top LNG exporter Qatar halted production at a key plant and declared force majeure on shipments, jolting global gas markets.
"The disruption to LNG supplies comes at a particularly vulnerable time. Inventories are low, particularly in Europe, as the heating season for Asia and Europe nears its end," ANZ said
"As a result, restocking will become increasingly difficult for consumers over the coming months, given limited alternative sources."
Metals:
Gold prices rose despite a stronger dollar as the widening Middle East conflict boosted demand for safe havens.
The precious metal has risen nearly 20% this year , though it remains well below the highs reached earlier this year.
"The market is keeping one eye on the impact of rising energy prices on inflation," ANZ said. "This has already seen traders scale back their bets on further interest-rate cuts."
Phillip Nova said the dollar's strength could continue weighing on gold prices.
The unexpected surge in the U.S. currency likely played a role in some profit-taking in gold , it said.
EMEA HEADLINES
European Economy Being Shaped by Iran Conflict, ECB's De Guindos Says
U.S. and Israeli strikes on Iran and the ensuing conflict have increased the level of uncertainty for Europe's economy, the European Central Bank's vice president said Thursday.
"The outlook of the European economy now is clearly shaped by what is happening now in the Middle East," Luis De Guindos said at a conference in Brussels.
Russia Is Big Winner as Iran War Drains Supplies That Ukraine Needs
Russia is one of the biggest winners in the early days of the largest U.S. military confrontation in decades, as Iranian missiles deplete stocks of Patriot interceptors that Ukraine needs for its defense.
Even before the Iran campaign, production bottlenecks in the U.S.-made Patriot system had drained Ukraine's reserves and left European allies on yearslong waiting lists. Those shortfalls have allowed Russia to punch through gaps in Ukraine's air defenses, devastating its power infrastructure and casting Ukrainian cities into blackouts.
Germany's Merck KGaA Expects Currency Headwinds to Weigh on Earnings
Germany's Merck KGaA forecast currency headwinds would continue to weigh on its earnings this year, as the life-sciences and chemical company prepares for a leadership change.
In Merck's final set of results with Belen Garijo as chief executive, the company projected lower adjusted earnings and sales to be flat at best for the year ahead, with considerable foreign-exchange headwinds affecting its results.
DHL Parent Deutsche Post Expects Earnings Growth Despite Uncertain Conditions
DHL parent Deutsche Post expects earnings to rise this year, despite anticipating continued uncertainty in the global economic environment.
The German logistics company-also known as DHL Group-said it expects to report earnings before interest and taxes of at least 6.2 billion euros ($7.21 billion) this year, up from the 6.1 billion euros it reported for 2025.
Strait of Hormuz: The Oil Bottleneck Threatening the Global Economy
President Trump's promise to protect the Strait of Hormuz with naval escorts and provide government-backed marine insurance underscores the urgent need to restore flows of energy from the Middle East before soaring prices rip through the world economy.
As of Wednesday, day five of the war on Iran, several thousand ships were stuck inside and outside the Persian Gulf, trapping roughly a fifth of the oil and liquefied natural gas the world consumes each day. The blockage is cascading through the region's industry as storage tanks fill up with oil that can't set sail, forcing producers to slash output.
GLOBAL NEWS
Asian Equities Rebound as Risk Appetite Improves
Asian equities rebounded Thursday following Wednesday's selloff, as appetite for risky assets improved on strong U.S. economic data released overnight.
South Korea's Kospi led gains in the region, rising 10% after its worst selloff on record. Korea Exchange briefly suspended trading in Seoul early Thursday to cool volatility following sharp gains in both the main Kospi and the smaller tech-heavy Kosdaq markets.
Southeast Asia Governments on Alert for Economic Impact of Iran Crisis
Governments across Southeast Asia are taking steps to limit the economic fallout from the conflict in the Middle East, keeping a wary eye on the impact of higher oil prices and supply-chain disruptions.
Foreign ministers from the 10-member Association of Southeast Asian Nations said in a statement that they are following the situation closely and expressed serious concern over the attacks by the U.S. and Israel as well as Iran's retaliatory strikes across the region.
China Signals New Era of Slower Economic Growth
China signaled that the world's second-largest economy is entering an era of slower expansion, setting a target for gross domestic product growth of between 4.5% and 5% this year.
It is the lowest target set since at least the 1990s and follows three years in which officials called for growth of "around 5%." If China's economy were to expand at a pace below 5% this year, it would be the slowest growth reported by the country in more than three decades, other than during the Covid-19 pandemic years.
Senate Gives Green Light to Trump's Iran Attacks
WASHINGTON-The GOP-controlled Senate rejected a resolution that sought to limit President Trump's ability to conduct military operations against Iran without congressional approval, with nearly all Republicans officially throwing their support behind Trump's open-ended mission against the Islamic Republic.
Senators voted Wednesday to block the measure from advancing, with 47 in favor and 53 opposed, largely along party lines. Democratic Sen. John Fetterman of Pennsylvania voted with Republicans against the measure, while GOP Sen. Rand Paul of Kentucky was the sole Republican who voted in favor.
Some European Leaders Are Now Openly Challenging Trump Over Iran
(MORE TO FOLLOW) Dow Jones Newswires
03-05-26 0517ET
