The confrontation in Iran has now run into its 12th week and shows no sign of abating. That persistence is sharpening concerns about the conflict's toll on the real economy even while equity markets, driven by an AI-led rally, continue to climb.
What policy makers will discuss
Finance ministers and central bankers from the G7 are due to meet in Paris early next week. Their agenda will be broad. Delegates will evaluate the strategic and economic implications of the standoff in Iran, the stresses that have emerged in the global bond market, how to safeguard supply chains for critical minerals, and the shock to oil markets caused by the conflict. With oil trading comfortably above $100 a barrel and no visible path to a settlement in Iran, the risk that the conflict inflicts more damage on economic activity grows with each passing day.
Bond-market volatility
Government bond markets from the United Kingdom to Japan and the United States have been unsettled by a mix of factors. Those include rising measures of inflation, political upheaval and, crucially, a material shift in investor expectations about where interest rates are headed. The result has been increased volatility across sovereign debt markets, adding a fresh layer of uncertainty for policymakers weighing inflation risks against growth concerns.
Corporate earnings spotlight
The U.S. corporate reporting season, which has already produced strong results for many firms, will finish with significant releases next week. Semiconductor heavyweight Nvidia, whose chips are central to artificial intelligence workloads, reports results on Wednesday. As the world's most valuable company by market capitalization, Nvidia's performance is seen as a bellwether for the AI-driven theme that has underpinned the recent equities rally.
Investors will also be watching a group of large retailers, including Walmart, Home Depot, Target and TJX Companies, for evidence of whether inflation tied to the conflict has begun to dent consumer spending. On balance, S&P 500 earnings are on pace to have risen by more than 28% in the first quarter from a year earlier, according to LSEG IBES, underlining the strength of corporate profits even amid geopolitical strains.
U.K. politics adds to gilt-market stress
In Britain, market participants are monitoring both labour market and inflation data, but attention is also fixed on developments in Downing Street. Following poor outcomes in local elections this month, there is growing concern about a potential leadership challenge to Prime Minister Keir Starmer. Political turmoil has already had an impact on gilt markets. The energy price effects stemming from the Iran conflict have compounded domestic uncertainty, contributing to a selloff in U.K. government bonds.
Health minister Wes Streeting resigned on Thursday, a move market observers say could precipitate a leadership contest. The prospect of a more left-leaning prime minister has heightened anxieties about Britain's fiscal position and helped push 10-year gilt yields to levels near 18-year highs. If upcoming inflation figures show another upward move and markets conclude that the Bank of England may need to tighten policy further this year, the gilt selloff could extend.
Transatlantic equity divergence
Investors will gauge whether earnings and macro news widen or narrow the performance gap between U.S. and European equities. Europe has been hit harder by disruptions to global energy supplies, given the region's heavier reliance on imported energy compared with the United States. That structural exposure, combined with robust results from major U.S. tech firms and signs of a weakening European consumer, has amplified the divergence in returns.
So far this year the S&P 500 has risen 8.8%, compared with a 3.3% gain for the STOXX 600. The split has been starker since the Iran conflict intensified in late February: the S&P 500 rose 8.3% across March and April, while the STOXX 600 fell 3% over the same period.
Asia's readings on energy and demand
Japan will publish first-quarter GDP data on Tuesday, which may offer an early gauge of how higher energy costs have affected an economy that is heavily reliant on oil imports. That reading will be followed by Japanese trade and inflation statistics later in the week, with the inflation print potentially strengthening the case for a near-term rate hike by the Bank of Japan if it points further upward.
Across Asia, China will release data on house prices and retail sales on Monday. Those series are closely watched for clues about the health of the property market and the strength of domestic consumption. The report notes that China's economy remains troubled by a weak property sector and lacklustre consumer demand even as broader growth momentum shows signs of resilience.
Together, the confluence of geopolitical strain, commodity-price pressure and key corporate results will shape how markets interpret near-term risks to growth and inflation. Policymakers and investors will be watching every piece of data and earnings release closely for signals on whether the recent patterns of market performance and monetary policy expectations will persist.