Fragile ceasefire brings some relief

A Pakistan-brokered two‑week ceasefire between the US, Israel and Iran eased fears of a prolonged disruption to energy supplies. The agreement triggered a violent reversal in oil markets, with Brent and WTI crude falling back below $100 a barrel after weeks of war‑related gains. Lower energy prices helped spark a broad risk‑on rally across equities and bonds, with US and European stock indices posting their strongest sessions in more than a month and safe‑haven assets such as gold giving up recent highs. 

Attention is now shifting back towards upcoming inflation data and the start of the earnings season, which will test whether this week’s relief rally can be sustained. However, it will need the ceasefire to hold too – and the agreement remains fragile. 

The FTSE 100 was +4.2% over the week by mid-session on Friday, with the more UK-focused FTSE 250 trading +4.7%.

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Middle East

A tentative two‑week truce was announced in the Middle East conflict, brokered under intense diplomatic pressure from Washington and tied to a deadline set by US president Donald Trump to halt further escalation. The ceasefire has brought a brief easing of hostilities, but its fragility was quickly underlined by reports of continued strikes and retaliatory fire, reinforcing doubts about whether the pause can be sustained beyond its initial window. Iran previously said they would not attend the talks unless Lebanon was included in the truce. As of Friday morning, it was unclear whether the Iranian delegation would be heading to Islamabad for Pakistan-brokered talks. President Trump also warned Iran against charging fees for passage through the Strait of Hormuz, adding that Tehran’s handling of traffic was “not the agreement we have”.

While the truce has lowered the immediate intensity of the conflict, it has done little to resolve the deeper political and military divides. The main parties remain far apart in their negotiating positions on core issues, including security guarantees, territorial control and the future role of armed groups. With no agreed framework for longer‑term talks and mutual distrust still high, the ceasefire is widely viewed as a temporary breathing space rather than a durable breakthrough, leaving the risk of renewed fighting firmly in place once the two‑week period expires.

Financial markets responded to the announcement with a swift but cautious relief rally, reflecting a reduction in near‑term tail risks rather than confidence in lasting de‑escalation. Oil prices fell sharply as traders unwound part of the geopolitical risk premium accumulated during the recent escalation, while global equities recovered and volatility measures eased, particularly in energy‑sensitive regions and sectors. Safe‑haven assets such as gold and government bonds softened as demand for protection ebbed, and risk‑oriented currencies strengthened modestly.

However, the market response remained restrained. Investors were quick to factor in the ceasefire’s fragility, ongoing skirmishes and the wide gap between the parties’ negotiating positions. As a result, markets have treated the announcement as a pause rather than a resolution, leaving risk premia only partially compressed and keeping sentiment highly sensitive to any signs that the two‑week truce may falter or collapse altogether.

The link between oil and food prices

Economics 

US inflation data due Friday afternoon will be closely watched after a renewed surge in energy prices raised concerns that recent progress on bringing price pressures under control may be stalling. Economists expect headline consumer price inflation in March to show a firmer monthly increase than in February, reflecting higher petrol prices after the escalation of conflict in the Middle East pushed oil above $100 a barrel, while core inflation – which strips out food and energy – is expected to ease only modestly. The release matters because it will shape expectations for US monetary policy at a delicate moment: the Federal Reserve has signalled it wants clearer evidence that inflation is moving sustainably back towards its 2% target before cutting interest rates, and a hotter‑than‑expected reading could delay any easing.

Minutes from the Federal Reserve’s March policy meeting showed officials grappling with sharply diverging risks to the US economy as the conflict in the Middle East complicated the outlook for inflation and growth. Policymakers broadly agreed on keeping interest rates on hold, but the discussion revealed a growing split over what might come next, with some members warning that persistently high inflation – fuelled by higher energy prices – could eventually require rate rises, while others argued that a prolonged geopolitical shock could weaken the labour market enough to justify cuts. The minutes also put the Fed’s latest “dot plot” into sharper context, underscoring how uncertain and narrow the path to lower rates has become: while the median projection still points to a single quarter‑point cut later this year, several officials have shifted towards fewer or no cuts, highlighting an increasingly cautious stance and reinforcing market expectations that any easing will be gradual and data‑dependent rather than imminent.

UK services sector activity slowed sharply in March, edging close to stagnation as the war in the Middle East weighed on confidence, costs and demand, according to the latest S&P Global survey released this week. The headline services Purchasing Managers Index (PMI) fell to 50.5, down from 53.9 in February and the weakest reading in 11 months, signalling only marginal growth and undershooting the earlier flash estimate. Businesses reported delayed spending and investment decisions by both corporate and consumer clients, while new work declined for the first time since late 2025 and export demand contracted at the fastest pace in almost a year. At the same time, input cost inflation accelerated to an 11‑month high, driven largely by higher fuel, transport and raw material costs, prompting renewed warnings from economists about rising “stagflation” risks as weaker growth collides with persistent price pressures.

Britain’s housing market cooled sharply in March as rising mortgage rates and heightened economic uncertainty linked to the Middle East conflict weighed on demand, according to the latest Royal Institute of Chartered Surveyors (Rics) residential survey. The balance of surveyors reporting price falls widened to –23 from –14 in February, the steepest decline since January 2024, while new buyer enquiries dropped to their weakest level since August 2023. Expectations also turned markedly more pessimistic, with the net balance for house prices over the next three months sliding to –43, the lowest since mid‑2023, and near‑term sales prospects deteriorating sharply. While a tentative ceasefire has helped ease money‑market pressures, borrowing costs remain well above levels seen earlier in the year, leaving buyers cautious and estate agents braced for a subdued spring market, even as rents continued to rise in response to falling landlord supply and resilient tenant demand.

Company news

Shell said this week that its first‑quarter performance has been hit by disruption in the Middle East, with the conflict denting gas output and driving a sharp but temporary squeeze on liquidity, even as extreme price volatility delivered a boost to its oil trading business. In a trading update ahead of full results due on 7 May, the UK energy group cut its guidance for integrated gas production to 880,000–920,000 barrels of oil equivalent a day, down from 948,000 in the previous quarter, citing outages at Qatari facilities following attacks on the Ras Laffan complex. 

ExxonMobil said this week that its first‑quarter performance has been shaped by sharp swings in energy prices and significant disruption to operations in the Middle East, as the company warned of a material hit to production even as higher oil and gas prices boosted upstream earnings. In a trading update ahead of full results due on 1 May, the US oil major said the conflict in the Gulf cut global production by about 6% in the first quarter, after missile damage to two liquefied natural gas trains at a major facility in Qatar where Exxon is a partner. The company estimated that higher crude and gas prices added roughly $2bn–$3bn to upstream earnings but said profits in its energy products division would be around $3.7bn lower than in the final quarter of 2025 due to volatility and the timing of cargo shipments. Exxon said many of the negative impacts were temporary and should unwind over time but warned that repairs to damaged assets could take years.

Delta Air Lines reported a resilient first quarter that beat expectations despite a sharp surge in jet fuel prices triggered by the conflict in the Middle East, as strong travel demand and premium sales helped offset mounting cost pressures. The US carrier posted adjusted earnings of 64 cents a share on revenue of $14.2bn, modestly ahead of forecasts, while warning that fuel costs had risen by more than $300m in the quarter and would add more than $2bn to expenses in the current period. In response, Delta said it would meaningfully scale back capacity growth to protect margins and move quickly to pass higher costs on to customers, including through bag fee increases, while maintaining a positive outlook for demand. 

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