What began as a long-distance hostility between Israel and Iran has now entered the terrain of direct confrontation, albeit still executed from afar. In recent days, Israel has ramped up its aerial campaign, unleashing a series of intensive strikes deep into Iranian territory. Tehran, undeterred, has responded with a barrage of missile and drone attacks aimed at Israeli positions.

Yet for all the ferocity, this is a conflict conducted at arm's length. The natural barriers that keep the two adversaries apart are not seas or mountains, but sovereign borders. Between them lie the territories of Turkey and Syria to the north, and Iraq and Jordan at the centre. These third-party nations, willingly or otherwise, serve as the buffer zones through which airstrikes are routed and missiles lobbed.

Such a configuration lends the conflict a peculiar remoteness. It is a theatre of war in which the antagonists rarely meet face to face, yet their enmity flares with unrelenting vigour. For now, direct engagement remains tempered by distance - but the fuse burns shorter with each passing exchange.

Israel wants to destroy Iran's nuclear program and even bring down the local regime. The US position is relatively passive, but Washington is allowing its ally to conduct its operations.

On the financial markets, this escalation has pushed up oil prices. Over the weekend, however, the price per barrel did not consolidate the initial gains that had taken it from around USD 65 to USD 75. Another consequence was that stock market indices took a dive on Friday. This was enough to push weekly performance into the red on Wall Street (down 1.1% for the S&P 500 on the day and down 0.4% for the week) and in Europe (down 0.9% for the Stoxx Europe 600 on the day and down 1.6% for the week). Investors focused more on defensive stocks and the oil and gas sector. The fear index, the VIX, rose slightly but did not spike. Investors were a little nervous, but they reacted with relative calm. The recent tensions between Israel and Iran have gradually de-escalated. Although this episode is the most intense in recent years, it is not considered, at this stage, likely to ignite the region. The geopolitics of the Middle East have changed significantly over the past 20 years, with the natural alliances that emerged after World War II being replaced by converging economic interests between capitals that were once openly hostile..

In other financial news, China reported much stronger-than-expected retail sales for May last night, while industrial production grew slightly less than economists had forecast. These are fairly good statistics, overshadowed by a continued slide in real estate prices, which is not the least of Beijing's problems as it struggles to revive a sector that weighs heavily on the local economy. Investors are mainly waiting for the US central bank's decision on interest rates on Wednesday evening, which will set the tone for the markets over the summer. In reality, the Fed will not change its current rates (4.25 to 4.50%), which is almost certain. The institution's chairman, Jerome Powell, will perform his usual balancing act: promising nothing, suggesting everything. Financiers are hoping that “suggesting everything” will leave open the possibility of a rate cut at the meeting scheduled for September. This would be the first easing since December 2024. On Wednesday, the Fed will also update its economic forecasts, as it does once a quarter, which will provide new insights for forecasters of all stripes.

What to know at the start of the week:

  • Donald Trump has vetoed an Israeli plan to assassinate Iran's supreme leader, according to US officials.
  • G7 leaders began a meeting in Canada on Sunday amid growing divisions with the US over foreign policy and trade.
  • Emmanuel Macron traveled to Greenland to show European solidarity after threats of annexation by the US.
  • Taiwan added Chinese companies Huawei and SMIC to its export control list.
  • On the macro agenda this week, there are a lot of central banks. On Tuesday, the Bank of Japan will kick things off with a likely status quo on rates. The Bank of Sweden (consensus -0.25%) and the Fed (status quo) will follow on Wednesday. They will be followed by the Swiss National Bank (-0.25%) and the Bank of England (status quo) on Thursday. Other macro statistics of interest include the German ZEW economic sentiment index on Tuesday and US retail sales on Wednesday.

In Asia-Pacific, Chinese and Australian markets are balanced at the start of the week, while green is dominant elsewhere. Japan is up 0.7% and South Korea 1.6%. India is up 0.7%. European leading indicators are slightly bearish.

Today's economic highlights:

See the full calendar here.

  • GBP / USD: US$1.36
  • Gold: US$3,418.73
  • Crude Oil (BRENT): US$74.66
  • United States 10 years: 4.44%
  • BITCOIN: US$106,714

In corporate news:

  • Spectris has rejected a takeover proposal from private equity firm KKR.
  • Thor Energy Plc has been offered licenses to explore gas storage possibilities.
  • Roche Holding has paused the development of Elevidys due to fatal liver failures and is advancing prasinezumab into a phase 3 trial for early-stage Parkinson's disease.
  • Mediobanca has delayed its shareholder meeting to September 25 to allow more time to clarify details concerning its potential acquisition of Generali.
  • Egetis Therapeutics has entered into an exclusive distribution agreement with Er-Kim to distribute EMCITATE in Turkey.
  • ICOP has acquired a 61.89% stake in Palingeo and has subsequently launched a mandatory takeover bid.
  • EQT has established a new fund with a total size of 23 billion euros.
  • Victoria's Secret is under pressure from activist investor Barington Capital Group to revamp its board and focus on its core bra business.
  • Brookfield has agreed to acquire Internet service provider Hotwire for approximately $7 billion, according to the WSJ.

See more news from UK listed companies here

Analyst Recommendations:

  • Tesco Plc: Stifel (formerly Bryan Garnier) maintains its buy recommendation and raises the target price from GBX 387 to GBX 418.
  • Halma Plc: Peel Hunt maintains its buy recommendation and raises the target price from 3000 to GBX 3280.
  • Drax Group Plc: RBC Capital maintains its outperform rating and reduces the target price from GBX 1050 to GBX 925.
  • Paragon Banking Group Plc: Peel Hunt maintains its buy recommendation and raises the target price from 950 to GBX 1030.
  • Segro Plc: Morgan Stanley maintains its overweight recommendation and reduces the target price from 900 to GBX 850.
  • Prudential Plc: JP Morgan maintains its overweight recommendation and raises the target price from 10 to GBP 11.50.
  • Bellway P.l.c.: Jefferies maintains its buy recommendation with a price target reduced from 3732 to GBX 3724.