After a very difficult start to the week for European indices, Wednesday's session provided a measure of respite. The losses recorded on Monday and Tuesday alone had wiped out almost all the gains accumulated since the start of the year. On Wednesday, the Dax and the Euro Stoxx 50 gained 1.7%. The FTSE 100 and the CAC 40 rose by 0.8%, while On Wall Street, the session was also positive across most sectors, with semiconductors leading the advance.

While this move partly reflects a technical rebound, particularly in Europe, markets also reacted to a New York Times article reporting that Iranian intelligence agents had indirectly approached the CIA to open discussions aimed at ending the conflict. It is difficult to assess the significance of this information, given that the Iranian officials involved may already be dead, and that Donald Trump himself has indicated that the time for negotiations has passed.

What is certain is that oil and gas prices declined yesterday, offering equities a measure of relief. Various statements from members of the Trump administration, referring to measures designed to secure navigation in the Persian Gulf, also helped on this front. As we shall see shortly, however, this calm proved short-lived.

Another factor supporting Wall Street yesterday came from macroeconomic data. The ADP report showed that 63,000 jobs were created in the private sector in February. Meanwhile, the ISM manufacturing index came in at 52.4, marking a second consecutive month of expansion after ten months of contraction. The services ISM stood at 56.1, its highest level since October 2024. These figures point towards an American economy where growth is accelerating.

But that is when looking in the rear-view mirror. The outlook itself has darkened somewhat for markets.

At the start of the year, investors expected another positive year for equities. The consensus pointed to double-digit gains for indices in both Europe and the United States. Wall Street was expected to benefit from Federal Reserve rate cuts, investment spending linked to artificial intelligence, and Donald Trump's tax-cut package, the famous One Big Beautiful Bill. Europe, for its part, was expected to benefit from the German fiscal stimulus, rising military budgets, and, more tactically, diversification away from the United States.

That was the original plan. But a plan rarely unfolds without setbacks and in finance, it is often said that the consensus is always wrong. The first train to derail was artificial intelligence, a theme that had propelled equity markets higher since the release of ChatGPT in late 2022. Since the start of the year, however, it has increasingly become a trigger for market sell-offs. Many sectors are now perceived as losers in the AI race, and the punishment has been severe as start-ups in the sector continue to unveil new functionalities. Funding continues to flow freely, but the map of winners and losers has been thrown into turmoil.

Since the weekend, another pillar of the bull case has been seriously called into question: central bank rate cuts. The war in the Middle East has significantly disrupted navigation through the Strait of Hormuz, through which roughly 20% of global oil and a similar share of liquefied natural gas normally transit, sending energy prices sharply higher. And higher energy prices mean renewed inflationary pressure.

In this shock, Europe is on the front line, as it remains one of the regions most dependent on energy imports. Until now, the central scenario pointed to a status quo from the European Central Bank in 2026. The possibility of rate hikes this year is now back on the table.

For the Federal Reserve, the starting point is somewhat different. Inflation remains, in the official language, somewhat elevated, in other words between 2.5% and 3%. Fed officials nevertheless expected a few additional rate cuts in 2026, thanks to a gradual decline in inflation. But if the rise in energy prices proves persistent, the Fed could lose all or part of its room for manoeuvre.

This context has already triggered a sharp rise in interest rates this week, which is generally negative for equities. And to be thorough, and to make matters worse, an energy shock does not merely mean more inflation, it also implies weaker growth. Higher prices destroy demand. Economists refer to this as a stagflationary shock.

I do not mean to dampen everyone's mood, but simply want to highlight how dramatically the narrative has changed in just two months. At the start of the year, the outlook appeared relatively clear. It is now considerably more clouded. Put differently, another year of double-digit gains for the S&P 500 now looks far less certain.

Today's session will be driven by remarks from Christine Lagarde and the weekly US jobless claims. On the corporate side, the results from Costco and Marvell will be closely watched. Last night, quarterly results from Broadcom, one of the largest American companies and one bearing the small "AI" stamp, reassured investors: after some hesitation, the shares were up more than 5% in after-hours trading.

On the oil front, the easing proved short-lived. Prices have surged again as signals of supply tensions multiply. Increases in refined product prices here, a spike in gas prices there, export restrictions on petroleum derivatives elsewhere. To crown it all, China has asked its refiners to suspend exports of diesel and petrol. After wavering yesterday, Brent crude is once again flirting with USD 85 a barrel this morning.

Asia-Pacific markets are rebounding after being battered yesterday. The standout once again is South Korea, where the KOSPI is up 9% after plunging 12% the previous day. There is no need for leveraged products there: conventional instruments provide enough volatility. Tokyo is up 2.2%, while Sydney and Mumbai are limiting their recovery to 0.5%. In China, Hong Kong and mainland markets are posting moderate gains following the announcement of Beijing's new targets. The growth objective has been set in the 4.5% to 5% range. Optimists note that this remains relatively high. Pessimists point out that it represents the lowest level since the creation of the World Wide Web and the Gulf War, to remain in the spirit of the times. That was in 1991.

Western leading indicators are pointing lower, notably because of the renewed rise in oil prices.

Today's economic highlights:

On today's agenda: the balance of trade in Australia; industrial production in France; the unemployment rate in Switzerland; retail sales in Italy and the Euro Area; the construction PMI in the United Kingdom; the ECB monetary policy meeting accounts and President Lagarde's speech in the Euro Area; in the United States, initial jobless claims, unit labor costs, import and export prices, and nonfarm productivity. See the full calendar here.

  • GBP / USD: US$1.33
  • Gold: US$5,171.46
  • Crude Oil (BRENT): US$83.31
  • United States 10 years: 4.12%
  • BITCOIN: US$72,629.6

In corporate news:

  • Wizz Air expects a €50 million negative impact on its fiscal 2026 net profit due to Middle East disruptions, pushing earnings below previous guidance.
  • Shell and Cosan end talks to rescue Raizen due to a disagreement over financing.
  • British American Tobacco faces a London lawsuit from over 100 shareholders for failing to disclose sanction violations related to sales to North Korea.
  • Galliford Try reported a 22% rise in interim pretax profit and raised its full-year earnings expectations.
  • Cairn Homes upgraded its 2026 revenue guidance and announced plans to increase housing output by over a third by 2027.
  • Metro Bank swung to a £87.2 million profit in 2025, supported by cost reductions and higher net interest income.
  • Quilter launched a £100 million share buyback after reporting a swing to a £163 million profit in 2025, driven by strong inflows.
  • Vistry warned of lower profit margins in 2026 due to sales incentives and announced the retirement of its CEO.
  • Capita secured a £370 million, ten-year contract to deliver back-office services for UK government departments.
  • IP Group committed $35 million to autonomous vehicle technology firm Oxa as part of a $103 million funding round.
  • Hutchmed launched a Phase I/IIa trial for its cancer treatment HMPL-A580 in the US and China.
  • Gresham House Energy Storage Fund reported a 3.7% annual increase in net asset value per share and outlined plans for new acquisitions.
  • A Missouri judge gives initial approval to the $7.25 billion settlement on Bayer's Roundup.
  • Galderma reports an increase in net profit and sales in 2025.
  • Nexi generates annual EBITDA of €1.90 billion.
  • Banco Santander's exposure to bankrupt lender MFS exceeds £200 million, according to Bloomberg.
  • Banca Monte dei Paschi di Siena has proposed three candidates for the position of CEO.
  • Hapag-Lloyd suspends all bookings to and from the Persian Gulf.
  • Davide Campari has not seen any significant impact from the crisis in the Middle East at this stage, according to its CEO.
  • KKCG Maritime receives the green light from Italy to acquire Ferretti shares.
  • Bossard announces adjusted EBIT of CHF 112 million for fiscal year 2025.
  • Avolta obtains a seven-year extension of its duty-free contract with Zurich Airport.
  • PSI Software is removed from the SDAX.
  • Broadcom gained 5% in after-hours trading following its quarterly results, reporting higher sales in the latest quarter, driven by a doubling of AI-related revenue to $8.4 billion.
  • Morgan Stanley will cut approximately 2,500 jobs, or 3% of its workforce, according to the WSJ.
  • CoreWeave signs multi-year partnership with Perplexity for AI inference.
  • Amazon is cutting jobs in its robotics division, according to Business Insider.
  • Johnson & Johnson launches J&J Direct to sell drugs directly to US consumers.

See more news from UK listed companies here

Analyst Recommendations:

  • Vistry Group Plc: Stifel upgrades to buy from hold and reduces the target price from GBX 670 to GBX 610.
  • Hochschild Mining Plc: Peel Hunt maintains its buy recommendation and raises the target price from GBP 7.90 to GBP 8.75.
  • Wizz Air Holdings Plc: Panmure Liberum maintains its sell recommendation and reduces the target price from GBX 960 to GBX 600.
  • Greatland Gold: Argonaut Securities Pty Limited maintains its buy recommendation and raises the target price from AUD 16 to AUD 16.20.
  • Softcat Plc: UBS upgrades to neutral from sell and reduces the target price from GBX 1450 to GBX 1225.
  • Sunbelt Rentals Holdings, Inc.: JP Morgan initiates a neutral recommendation with a target price of USD 78.
  • Intercontinental Hotels Group Plc: UBS maintains its neutral recommendation and raises the target price from GBX 150 to GBX 150.50.
  • Shell Plc: UBS maintains its neutral recommendation and raises the target price from GBX 2850 to GBX 3200.
  • Intertek Group Plc: Citi maintains its buy recommendation and reduces the target price from GBP 58.47 to GBP 57.17.
  • British American Tobacco P.l.c.: Argus Research Company maintains its buy recommendation and raises the target price from USD 62 to USD 68.
  • Hiscox Ltd: Jefferies maintains its underperform recommendation and raises the target price from GBX 1068 to GBX 1148.
  • The Weir Group Plc: Panmure Liberum maintains its hold recommendation and reduces the target price from GBX 3660 to GBX 3490.
  • Fresnillo Plc: Peel Hunt maintains its hold recommendation with a price target raised from GBP 36.47 to GBP 36.474.