After tumbling on Friday in response to renewed hostilities between Israel and Iran, financial markets regained their footing on Monday. Not quite enough to guarantee a zero-sum game, but enough for me to write this morning that the escalation between the two enemies is considered manageable by financial circles. As is almost always the case, the initial knee-jerk reaction has given way to a more pragmatic approach.

The wise know that you have to let the hotheads tire themselves out before taking back control. The main argument in favour of de-escalation is the asymmetry of military power between Israel and Iran. The Jewish state's projection capacity is far superior and its air superiority is insurmountable for Tehran, which can only respond in a piecemeal fashion. In short, the damage dealt by Israel to Iran far outweighs what Iran can deliver in return - at least within the scope of the conflict that erupted last week. This state of affairs and Tel Aviv's clear desire to bring down the mullahs' regime are pushing Tehran to seek a negotiated way out. What might Donald Trump offer, having left the G7 summit in the 51stUS state of Canada prematurely to return to Washington and manage the crisis in the Middle East?

At the same time, financiers also considered that the conflict could have only a limited impact on oil prices, at least beyond the initial spike. Supply is currently abundant and Iran does not appear to have any intention of restricting access to the Persian Gulf by closing the Strait of Hormuz. Initial fears in this regard are therefore on the wane, as illustrated by the fall in oil prices and the decline in the VIX volatility index.

I would not go so far as to say that the current standoff between Israel and Iran is a done deal; that would be presumptuous and reckless given the twists and turns that history has in store. But investors clearly tend to believe that the turmoil surrounding tariffs and US debt are still at the top of the pile and that these risks are offset by hopes of lower interest rates, economic resilience and the promise of AI. However, Donald Trump recommended evacuating Tehran and then claimed that his premature departure was justified by something much more important than a possible ceasefire. This teasing has caused quite a bit of tension in the futures markets this morning.

Elsewhere, Donald makes a double appearance this morning. First, on the familiar terrain of customs duties: he has signed a US-UK trade pact with Keith Starmer, though the thorny steel issue remains unresolved. The second item veers into the absurd. The Trump Organisation plans to launch its own smartphone, the T1, in September. Yes, a Trump-branded phone, complete with a Trump mobile plan. Priced at $499, the Android device will be gold-plated. And while the Trump Organisation claims it would be "proudly built" in America, specialists point out that producing it domestically at that price is, of course, a fiction.

A superb illustration of the proverb ‘Do as I say, not as I do’. Tim Cook, CEO of Apple, must be moderately appreciative of the irony of the situation.

In other news, the Bank of Japan decided to leave interest rates unchanged last night. At the same time, the central bank will halve the pace of its balance sheet reduction. The BoJ's position comes as no surprise. There will be a slew of macroeconomic indicators today, particularly in the United States, ahead of the Fed's interest rate decision tomorrow evening.

In Asia-Pacific this morning, markets are mixed. Japan, Taiwan and South Korea rose, while China, Hong Kong, India and Australia are clearly in the red. Leading indicators in the West are showing renewed nervousness and should lead to a bearish opening in Europe.

Today's economic highlights:

  • GBP / USD: US$1.36
  • Gold: US$3,388.29
  • Crude Oil (BRENT): US$73.57
  • United States 10 years: 4.44%
  • BITCOIN: US$107,017

In corporate news:

  • Eden Research has collaborated with Royal Holloway to develop a seed treatment product.
  • Informa confirmed its commitment to achieving a group underlying revenue growth rate of over 5% by 2025.
  • Wizz Air is close to finalizing a deal to equip 177 Airbus aircraft with Pratt & Whitney engines.
  • UK Government has secured a 500 million pound rail contract with British Steel.
  • Banco de Sabadell is exploring the sale of its UK subsidiary TSB in response to a hostile takeover bid from BBVA.
  • Blackstone Europe's Warehouse Reit has entered into an addendum to its confidentiality agreement with Bidco.
  • Irish Government is selling its remaining stake in AIB Group PLC, offering 44 million shares priced between EUR 6.94 and EUR 7.01.
  • Rusta AB reported improved Q4 financial results with increased revenue and a reduced EBITA loss.
  • Banca Monte dei Paschi is planning to acquire Mediobanca, which has recently purchased its own shares for over EUR 8 million.
  • OpenAI executives are contemplating accusing Microsoft of anticompetitive behavior while securing a $200 million Pentagon contract.

See more news from UK listed companies here

Analyst Recommendations:

  • Bunzl Plc: RBC Capital downgrades to sector perform from outperform with a target price reduced from GBX 2600 to GBX 2350.
  • Lloyds Banking Group Plc: JP Morgan maintains its underweight recommendation and raises the target price from 0.71 to GBP 0.78.
  • Ninety One Plc: JP Morgan upgrades to neutral from underweight with a target price raised from GBP 1.32 to GBP 1.78.
  • Barclays Plc: JP Morgan maintains its overweight recommendation and raises the target price from GBP 4 to GBP 4.20.
  • Ithaca Energy Plc: Morgan Stanley maintains its market weight recommendation and raises the target price from GBX 141 to GBX 157.
  • Energean Plc: Morgan Stanley maintains its market weight recommendation and reduces the target price from 1080 to GBX 930.
  • Shell Plc: Bernstein downgrades to market perform from outperform with a target price reduced from GBX 3600 to GBX 3100.