Overview
The confrontation between the United States and Iran has now entered its 11th week, extending well beyond the timeframe initially indicated by the U.S. president when military action was first ordered. There are no signs of a de-escalation, and the situation remains a dominant influence on energy markets and investor sentiment.
Energy and market reaction
Concerns over Tehran's nuclear ambitions and its effective control of the Strait of Hormuz - which has been largely closed to oil and cargo shipping - pressured oil markets last week. World oil prices surged nearly 5% on a U.S. presidential declaration overnight before easing, leaving Brent crude trading at about $104 per barrel. That spike was sufficient to interrupt the recent run of buoyant equity markets.
At the same time, demand for technology and semiconductor stocks continued to propel parts of global equity markets higher. South Korea's chip-heavy KOSPI benchmark rose more than 4% on Monday, highlighting how the AI-driven boom competes for investor attention with the energy shock.
U.S. equity futures were largely unchanged early on Monday after the S&P 500 posted another round of record highs last week. That resilience was reinforced by a U.S. April employment report released on Friday, which, together with other labor market indicators last week, indicated little or no immediate damage to overall job creation from the conflict so far.
Potential vulnerabilities
Analysts caution that employment impacts could lag and that persistently high gasoline pump prices may eventually weigh on consumer spending. While near-term labor indicators have held up, delayed effects from higher energy costs remain a risk to consumption and growth.
Asia, trade and inflation
China's mainland stock markets climbed ahead of a leaders' summit later this week, when the U.S. president is scheduled to meet President Xi Jinping beginning on Thursday. However, Chinese producer and consumer price inflation moved above forecasts amid the energy shock, a development that could complicate the economic backdrop for the summit.
April export growth in China accelerated as factories worked to meet a wave of orders from AI-related industries and from buyers seeking to stockpile components amid fears that the Iran conflict could push global input costs higher. That strength in exports has contributed to a widening trade surplus with the United States, which has reached $87.7 billion so far this year. The trade picture will be in focus as the two leaders meet, with talks expected to extend last year’s trade truce.
Policy and politics
Treasury Secretary Scott Bessent is scheduled to depart for Tokyo for meetings with Japanese officials, while Washington will see a potentially consequential vote in the U.S. Senate on the nomination of Kevin Warsh to be the next Federal Reserve Chair. The current Fed Chair's term formally expires on Friday.
Across the Atlantic, pressure on British Prime Minister Keir Starmer increased following poor local election results. Despite weekend reports of a possible leadership challenge, he announced he would not step down and delivered a Monday speech aimed at stabilizing party support.
Data and corporate calendar
On the economic calendar, U.S. existing home sales for April are due Monday, and April inflation updates will dominate the data flow from Tuesday. Market participants will also watch a U.S. Treasury three-year note auction and the Conference Board Employment Trends Index for April.
Corporate earnings of note this week include Cisco and Applied Materials, which may draw attention given the ongoing technology and chip sector strength.
Events to watch today
- U.S. April existing home sales (10 a.m. EDT)
- April Conference Board Employment Trends Index (10 a.m. EDT)
- U.S. 3-year note auction (1 p.m. EDT)
- U.S. Treasury Secretary Scott Bessent departs for a three-day trip to Tokyo
Closing note
The persistence of the Iran conflict continues to ripple through energy markets and the broader economy, even as technology-led rallies and firm labor readings have supported equity markets. This week’s mix of inflation data, policy decisions and high-profile corporate results will test how durable that resilience is in the face of a protracted geopolitical shock.