The weekend brought more fire and brimstone but investors are taking the long view: Israel and Iran exchanged strikes for a fourth day on Monday but markets seemed to be moving towards relative calm after an initial risk-off move on Friday. Stocks tumbled at the end of last week with the Dow shipping over 700 points and the S&P 500 sliding over 1% to drag the indices lower for the week, while gold and oil rallied. So far the relative calm in the market indicates investors assume a limited conflict and not much wider conflagration – depends on US/Russia and so far there does not seem to be appetite to stoke the fire further.

European stock markets are firmer this morning after sliding on Friday, whilst US stock futures are also looking perkier. Oil prices remain elevated after spiking last week – the main question hanging over the market is whether the Strait of Hormuz gets shut. This could have serious inflationary repercussions. As a result, oil majors Shell and BP are giving the blue chips a lift.

Defense and energy outperformed with Lockheed Martin, RTX, Northrop Grumman, and Exxon gaining as oil surged nearly 7%. Despite Friday’s selloff, the S&P 500 remains up for June and 2025. European markets ended the week at one-month lows, whilst the FTSE eked out a modest gain after hitting a record closing high.

There is a tonne of central bank action this week including the Fed and Bank of England, both of which are expected to leave rates unchanged. The threat of an oil-driven inflation impulse will keep the Fed in wait-and-see mode, but the main question is whether policymakers open the door to a July cut. BOE likely to stick to gradual and careful language.
Meanwhile, the G7 summit will provide plenty of scope for world leaders to talk.