Live updates: Follow the latest news on US-Iran war
Global stock markets were lower on Thursday, as investors continued to worry about uncertainty due to the US and Israel's war against Iran, which is about to enter its fourth week with no end in sight.
Stock markets fell for a second week last Friday due to the conflict, which has escalated as both sides have begun striking energy sites, disrupting the global energy sector.
Investor unease deepened after Abbas Araghchi, Iran’s Foreign Minister, warned of further escalation. “Our response to Israel's attack on our infrastructure employed a fraction of our power,” he said in a post on X. “The only reason for restraint was respect for requested de-escalation. Zero restraint if our infrastructures are struck again. Any end to this war must address damage to our civilian sites.”
The statement underscored the risk of a broader conflict and added to volatility across asset classes.
Recent signals from the US Federal Reserve, the European Central Bank and other institutions have already highlighted a willingness to keep borrowing costs elevated for longer. The latest jump in oil prices has reinforced that outlook, with markets reassessing the timing and extent of any easing cycle.
"The war in the Middle East has made the outlook significantly more uncertain, creating upside risks for inflation and downside risks for economic growth," ECB President Christine Lagarde said in a statement after the central bank held rates steady on Thursday.
"It will have a material impact on near-term inflation through higher energy prices. Its medium-term implications will depend both on the intensity and duration of the conflict and on how energy prices affect consumer prices and the economy."
The combination of geopolitical risk and a more hawkish policy environment is creating a challenging backdrop for worldwide markets. Rising energy prices threaten to add to inflationary pressures while also burdening economic growth, leaving policymakers with limited room to respond.
Investors are now bracing for prolonged volatility, as developments in the Middle East remain the dominant driver of market sentiment.
Wall Street pared back losses as oil prices slid, with the Dow Jones Industrial Average closing 0.44 per cent, or 203.2 points, lower after falling by nearly 500 points earlier in the day. The S&P 500 and tech-rich Nasdaq Composite both shed about 0.3 per cent.
In Europe, major bourses fell sharply, with London's FTSE 100 retreating nearly 2 per cent, as investors shied away from riskier assets.
They are also awaiting the Bank of England's decision on interest rates. The US Federal Reserve left interest rates unchanged for a second meeting in a row on Wednesday, as the Iran war's effect on oil prices complicates the way forward. The European Central Bank is also due to announce its decision.
Frankfurt's DAX slid almost 3 per cent, while the CAC 40 in Paris dropped 2.3 per cent.
Earlier, in Asia, investors also moved away from riskier assets, with stocks in China slipping to six-week lows as they tracked developments in the war and its effects on world economies.
The Shanghai Composite ended 1.4 per cent lower, while Hong Kong's Hang Seng declined 2 per cent. Japan's Nikkei, after rising 3 per cent on Wednesday, swung to a 3.4 per cent loss at the close on Thursday.
In commodities, oil prices remain elevated. Brent was up 3.47 per cent at $111.10 per barrel and West Texas Intermediate added 0.62 per cent to $96.92 a barrel at 6.05pm UAE time.
The surge in oil prices has also shifted expectations for monetary policy, with investors scaling back bets on near-term interest rate cuts. Higher energy costs risk feeding into inflation, potentially forcing central banks to maintain a more cautious stance.
Gold and silver, meanwhile, continued their decline from recent highs. They were down 5.3 per cent to $4,630.75 and nearly 10 per cent to $70.06 per cent an ounce, respectively.
