Live updates: Follow the latest news on the Iran war
Major stock markets ended the week mostly higher on Friday on what analysts have called a sentiment-driven rally, as investors braced for crunch talks between the US and Iran that are expected to provide clues on equity direction.
Delegations from Washington, led by Vice President JD Vance, and Tehran are in Pakistan to begin negotiations in hopes of ending the war, which is entering its seventh week, and has severely disrupted markets, economies and especially the oil sector.
Both sides agreed to a ceasefire on Wednesday, although it has remained fragile as Israeli forces, which are allied with the US against Iran, continued attacking targets in Lebanon.
Analysts say that stock market improvement has been a result of sentiment, and that this week's truce "delivered one of the most dramatic turns of the year ... that flipped the entire market narrative", said Christian Gattiker, head of research at Swiss financial firm Julius Baer.
"Markets moved from ‘shock to squeeze’ in a matter of hours. Yet, despite the relief, confidence in the durability of the ceasefire remains limited," he said.
"The agreement is explicitly temporary and conditional, with the conflict still described as unresolved and prone to renewed escalation. Markets remain firmly in 'traders’ land', driven by sentiment and positioning rather than conviction."
On Wall Street, the S&P 500 and the Nasdaq Composite inched higher at the closing bell, while the Dow Jones Industrial Average nudged down.
However, the indices posted weekly gains of 3.6 per cent, 4.7 per cent and 3 per cent, respectively, to log their best weekly advances since November.
"Markets are increasingly trading on optimism around the Middle East ceasefire, with equities pushing higher as investors lean into the narrative that the agreement will hold and that the worst of the energy shock may be behind us," said Daniela Hathorn, senior market analyst at Capital.com.
"The rebound across major indices reflects a clear shift from pricing escalation to pricing stabilisation. However, this move appears to be driven more by sentiment and positioning than by a meaningful improvement in underlying fundamentals, leaving markets exposed should that narrative be challenged."
In Europe, London's FTSE 100 closed flat, as investors remained cautious and also kept tabs on the US-Iran talks. Frankfurt's DAX was also flat, while Paris' CAC 40 inched up.
Earlier in Asia, the Shanghai Composite snapped a five-week losing run as industrial deflationary risks eased in China.
Hong Kong's Hang Seng index also rose, while Tokyo's Nikkei 225 jumped nearly 2 per cent on optimism on the negotiations.
In commodities, oil prices gave up gains to settle lower and post a weekly loss following the ceasefire. Brent retreated 0.75 per cent to settle at $95.20, while West Texas Intermediate shed 1.33 per cent to close at $96.57.
Gold, meanwhile, closed lower but still posted a weekly gain as the dollar retreated on the US-Iran talks.
The precious metal, a hedge against inflation, shed nearly 1 per cent to $4,748.73 an ounce to cap off a week in which it climbed about 2 per cent.
