FRANKFURT (dpa-AFX) - Inflation and economic concerns fueled by the Iran war remain the focal point for equity markets heading into the new week. Last week marked the weakest performance for the German benchmark Dax index since the U.S. tariff storm in April 2025, with the index plunging nearly seven percent. Pressure is expected to persist at the start of the week as oil prices continue their rapid ascent.
Broker IG estimated the Dax at approximately 22,770 points around 5:45 a.m. on Monday – representing a further 3.6 percent decline from Friday. Should the Dax fall to this level during regular trading, it would mark its lowest point since the spring of last year. Compared to its record high of just over 25,500 points, this would constitute an eleven percent drop.
Just before the weekend, U.S. President Donald Trump demanded an "unconditional surrender" from Iran. Over the weekend, the U.S. and Israel continued massive strikes against the country. In this environment, economic data took a backseat last week, with the exception of the monthly U.S. labor market report, which raised some doubts about the country's economic health.
While distorting effects, such as strikes, made interpreting the jobs data difficult, the overall picture was not positive, explained expert Tobias Basse from NordLB. In any case, the U.S. Federal Reserve is under pressure to act, and faster interest rate cuts are possible.
Countering this are the uncertainties regarding the escalation of the Middle East conflict and the resulting surge in oil and gas prices. These bring inflationary risks, which generally argue against lower interest rates. A swift end to the war would therefore bring significant relief to financial markets, while a prolonged conflict carries correspondingly high risks.
According to U.S. assessments, Iran's combat strength has been significantly weakened following the attacks by the U.S. and Israel. Nevertheless, the Iranian leadership is attempting to expand the war across the entire Middle East, targeting the oil and gas infrastructure of the Gulf States. Furthermore, maritime traffic in the Strait of Hormuz – a bottleneck for global oil and gas trade – has now come to a near-complete standstill, according to the maritime consultancy Joint Maritime Information Center (JMIC).
"Nearly a week after the start of the Iran war, its end is not in sight," wrote economists Christoph Balz and Marco Wagner of Commerzbank in their market assessment. While their "base scenario" assumes that the war and the resulting disruptions to shipping in the Strait of Hormuz will last only a few weeks.
"Given the goal of 'regime change' repeatedly cited by the U.S. and Israeli governments, there is a risk that the U.S. and Israeli attacks could drag on for several months, thereby hindering the transport of oil and gas for a longer period," the two experts stated.
In an extreme case, they estimate that one-fifth of global production for both oil and liquefied natural gas could be blocked from the world market. The price of oil could then rise to 100 U.S. dollars per barrel (159 liters). For comparison: in the week now ending, the price of Brent North Sea crude for May delivery already rose by about a quarter to nearly 91 dollars.
A continued and, above all, sustained rise in oil prices would likely push inflation back up. In the Eurozone, an inflation rate of 3 percent would be conceivable, which would slow economic growth, according to Balz and Wagner. The European Central Bank would then be forced to act.
As financial contracts on the futures markets show, investors are already pricing in a key interest rate hike of 0.25 percentage points by the ECB in the second half of the year.
However, that point has not yet been reached. Robert Greil, chief strategist at the private bank Merck Finck, also assumes a rather short war of no more than three months in his base scenario. "A much faster end to the war seems less realistic to us, as does a much longer duration with, for example, a months-long closure of the Strait of Hormuz as of today." Oil prices – and thus inflation – would then only be elevated for a short time.
Although February data does not yet reflect the Middle East crisis, financial market participants will turn their attention to U.S. inflation data mid-week. At first glance, inflationary pressure has recently eased significantly, and the data expected for February would normally suggest that the U.S. Federal Reserve's inflation target is largely being met, according to Balz. That target is 2 percent.
"Normally," Balz emphasized. Because: the so-called core PCE rate for January, which has not yet been published – the Fed's preferred measure of inflation – is likely to be at least 3.1 percent. "Consequently, even a relatively favorable report on consumer prices should be interpreted with caution. The PCE deflator, published a few weeks later, should paint a less favorable picture."
On the corporate side, the reporting season continues. In addition to the results for 2025, investors are primarily interested in how companies view the new year and whether they can already estimate the possible consequences of the Iran war. On Tuesday, automaker Volkswagen opens its books; in the U.S., investors will also look at quarterly figures from software and hardware group Oracle and its progress in its AI offensive.
Mid-week, Dax-listed consumer goods and adhesives group Henkel and defense company Rheinmetall will follow, before online fashion retailer Zalando, energy group RWE, truck manufacturer Daimler Truck, and reinsurer Hannover Re report on business developments on Thursday./mis/ag/men/jha/
