Global equity markets advanced to fresh highs on Friday as headlines suggested movement toward a US-Iran agreement, but European bourses have so far failed to follow the same trajectory and remain inside a roughly three-month trading range, according to a Barclays equity strategy note.
Barclays highlighted a divergence between US and European performance. The STOXX Europe 600 (SXXP) and the Euro STOXX 50 (SX5E) both continued to trade below their Feb. 27 peaks, while the S&P 500 was trading roughly 9% above that same reference level, based on the bank’s data.
Barclays’ scenario for a deal and market reaction
The bank’s strategists said a verifiable agreement that reopens the Strait of Hormuz - and that is followed by declines in oil prices and interest rates - could broaden market performance and help European equities escape the stalemate seen over the past three months. The note flags that such a development could prompt outperformance among sectors that had lagged while the conflict persisted.
At the same time, Barclays warned that any bounce among previously weak segments might be temporary. The institution’s macro team expects oil prices to remain higher for longer, a stance that keeps inflation risks on the table. The report also notes that, historically, energy shocks have tended not to produce sustained increases in crude, with prices falling once supply conditions adjusted, but that equity positioning did not appear to reflect that historical pattern.
Sector dispersion and potential squeezes
The bank’s analysis showed a wide gap between sector winners and losers across Europe since the conflict began. Energy, telecoms, utilities and insurance have outperformed, while consumer discretionary, miners and banks have lagged. Barclays observed that such dispersion leaves scope for a short squeeze, particularly among consumer and rate-sensitive stocks - including luxury, travel and leisure, autos and retail - if the geopolitical situation de-escalates.
Separately, the report flagged a rising thematic interest in space-related equities. European firms exposed to satellites and aerospace - among them Eutelsat, OHB, Avio, AAC Clyde Space, GomSpace and Thales - saw notable gains ahead of an anticipated major initial public offering in the United States, according to Barclays.
Flows and regional fund behaviour
On fund flows, global equities recorded net inflows of only $2.4 billion during the week, ending a run of eight consecutive weeks of strong inflows. Fixed income continued to draw larger amounts, attracting $30.5 billion in the same period. Year-to-date flows show fixed income leading with $331.2 billion in inflows versus $361.0 billion for equities, with the gap narrowing.
European equities experienced outflows of $2.3 billion both for the week and year-to-date. Europe ex-UK funds registered their seventh straight week of redemptions, down $2.2 billion in the latest week reported. The flow pattern also displayed cross-border dynamics: US-domiciled funds continued to withdraw money from European equities while European-domiciled funds remained buyers of US equities for a ninth consecutive week.
At the sector level, technology was the lone global sector to attract net inflows, while industrials and materials suffered the largest withdrawals. Within Europe specifically, every sector recorded outflows except healthcare, with financials and energy cited as the weakest areas in terms of flows.
Near-term data calendar
Barclays’ note points to upcoming US economic releases that could influence markets. The US ISM Manufacturing index for May is due on June 1, where consensus stands at 53.2 compared with 52.7 previously. US non-farm payrolls for May are scheduled for June 5, with a consensus estimate of 95,000 versus 115,000 in the prior month, according to Bloomberg consensus figures cited in the report.
Takeaway
While hopes for a US-Iran deal have helped lift global equities overall, Europe’s main indices remain anchored below earlier highs. Barclays suggests a credible de-escalation that lowers oil and rate expectations could catalyze a broader recovery among lagging European names, but prevailing flow trends and the bank’s view of oil remaining elevated complicate the outlook.