Global equity markets advanced on Friday as investor sentiment improved ahead of expected negotiations between the United States and Iran, raising hopes for a reduction in Middle Eastern tensions. European stocks were poised for a third straight week of gains, while Asian markets recorded their strongest weekly performance in over three years. This rally was boosted by indications that Israel might be willing to engage in talks with Lebanon, fueling optimism that regional conflicts could de-escalate and vital energy routes might reopen.
The pan-European STOXX index climbed 0.6 percent, driven by gains in healthcare and technology sectors. Meanwhile, Wall Street futures remained steady following the S&P 500’s extension of its winning streak to seven sessions on Thursday, reflecting a broader easing of market anxiety. Analysts observed that financial stress indicators have begun to stabilize, with volatility measures returning to levels seen before the conflict, signaling cautious investor confidence. Market participants are increasingly optimistic that upcoming diplomatic discussions, including talks planned in Pakistan, could represent a turning point in the crisis.
Despite the improved sentiment in equity markets, oil prices continued to show volatility. Brent crude increased about 1 percent on the day, hovering near $97 per barrel, yet it was on track for a sharp weekly decline of approximately 11 percent, marking its steepest drop since mid-2025. The Strait of Hormuz, a crucial channel for global energy shipments, remained mostly closed, with shipping volumes reported at less than 10 percent of normal levels. Iran continues to control access to the strait, linking its reopening to broader ceasefire agreements.
In a significant development, US President Donald Trump issued a warning to Tehran against imposing tolls on vessels passing through the strait, adding complexity to an already delicate situation. In currency markets, the US dollar was set for its worst weekly performance since January, falling roughly 1.3 percent against a basket of major currencies. The euro, while slightly lower on the day, stayed above key technical thresholds, indicating potential for further gains.
Investors are closely monitoring upcoming US inflation data, expected to reveal a sharp rise in consumer prices—the largest increase in nearly four years. Elevated energy costs linked to the conflict, combined with ongoing tariff effects, may reduce the likelihood of near-term interest rate cuts. Inflationary pressures are also emerging globally; in China, factory-gate prices rose for the first time in over three years, underscoring the wider economic impact of the ongoing conflict.
Meanwhile, bond markets reflected cautious positioning, with US Treasury yields edging higher and German bond yields poised for a weekly increase despite recent volatility. Overall, while markets show signs of recovery, uncertainty surrounding geopolitical developments and economic data continues to keep investors wary.
