By Daniela Hathorn, senior market analyst at Capital.com
The latest developments in the regional tensions point to a fragile and highly uncertain ceasefire that is already being tested. With continued challenges in the region and energy disruptions, raising questions about its sustainability.
From a market perspective, this uncertainty is clearly reflected in price action. Oil initially fell sharply on the ceasefire announcement as traders priced out worst-case supply disruption but has since rebounded as doubts over the agreement’s longevity have grown. At the same time, equities have struggled to build on initial gains, while the US dollar and yields remain supported, signalling that markets are still embedding a geopolitical risk premium despite the apparent de-escalation.
DAX 40 daily chart:
Past performance is not a reliable indicator of future results.
At the macro level, US’s February’s PCE inflation reading today showed that price pressures were already firm before the tensions intensified, with monthly gains holding steady and core inflation still above target. Combined with upward pressure from energy prices, this confirms that inflation risks are now skewed to the upside. Meanwhile, the final reading of Q4 GDP was revised lower once again, and while still reflecting resilience, it shows that the US economy had been softening even before the regional instability began and the impact of the energy shock has been factored in. Taken together, the narrative for markets is one of short-term relief but medium-term uncertainty where the ceasefire reduces immediate tail risk, but the underlying drivers of the tensions remain unresolved.
