EMEA Morning Briefing : Iran Conflict Pushes Europe Toward Fresh Energy Crisis

MARKET WRAPS

Watch For:

Services PMI data for eurozone, Germany, France, U.K., Italy; EU PPI, unemployment; trading updates from Bayer, Continental, Adidas, Beazley, Dassault Aviation, Nexi, Vistry Group, Weir Group, Traton

Opening Call:

European stock futures were mixed early Wednesday. Asian benchmarks fell, with South Korean stocks particularly hard hit; the dollar and Treasury yields were flat; oil and gold futures gained.

Equities:

Stock futures traded mixed early Wednesday, after a rout in European markets deepened Tuesday. Iran stepped up missile and drone attacks in the region and Israel hit targets in Lebanon.

Higher energy prices threaten to reignite inflation and derail a European economy that is only now finding its footing after the crisis that Russia's invasion of Ukraine triggered in 2022.

"Europe relaxed a bit after the energy crisis and now we find ourselves potentially at the start of another energy crisis," said Simone Tagliapietra, a senior fellow at Bruegel, a think tank in Brussels. "This is now a wake-up call to everybody."

Forex:

"The broadening conflict involving Israel, Iran, and the U.S. continues to weigh on global risk sentiment, keeping markets in a risk-off mode," MUFG Bank's Lloyd Chan said.

The greenback has benefited, underpinned by safe-haven demand and a moderation in market pricing for Fed rate cuts this year, he added.

Bonds:

Spreads for an aggregation of 10 year investment-grade U.S. bonds have risen to 0.86% from a 2026 low of 0.73% in late January, according to St. Louis Fed data. Driving them higher is not only war in the Middle East, but also what has been persistent news flow about private credit funds seeing deterioration to the assets they hold, causing markets consternation about corporate credit.

The takeaway: while spreads aren't flashing red yet, they're dangerously close. Credit markets are at "yellow flag" levels, said Evercore strategist Julian Emanuel.

Energy:

Oil prices are likely to remain elevated relative to preconflict levels, with a risk of spikes if there are concerns about a prolonged disruption of the Strait of Hormuz, PineBridge Investments said.

Risk assets can handle a "low intensity" war of attrition in the Gulf if the risk of a prolonged impassibility of the Strait is diminished. Oil prices will likely be the reason the Iran conflict results in changes to fed-funds rate expectations.

Metals:

The repricing of interest-rate expectations could pose headwinds for gold prices, eToro's Josh Gilbert said. Surging energy prices are forcing investors to rethink pricing in two Federal Reserve rate cuts this year.

A stronger dollar and rising bond yields could be enough to overwhelm the metal's safe-haven status, which normally supports it in geopolitical crises. Still, the structural case for gold hasn't changed, as central banks continue to buy the metal and concerns around fiscal deficits remain firmly in place, he said.

-

The Middle East conflict raises upside risks for aluminum prices and physical premiums, said ING's Ewa Manthey. The Gulf Cooperation Council accounts for around 8.0% of global aluminum output, but only produces around 3.0% of global alumina and about 1.0% of bauxite, leaving the region heavily reliant on imported raw materials.

Extended disruption in shipping through the Strait of Hormuz could choke alumina inflows and aluminum exports, tightening global supply meaningfully. The duration of disruptions to Hormuz is likely to determine how far aluminum prices and premiums move.

TODAY'S TOP HEADLINES

Coal Prices Rise as Iran Conflict Stokes Fears of Energy Crisis

The price of coal used in power generation is starting to heat up again, as conflict in the Middle East fans concerns about global energy security.

European thermal-coal prices have surged to their highest level since October 2023, reflecting worries that reduced natural gas supply from major Middle Eastern exporters such as Qatar will lead to the power sector using more coal and less gas.

Iran Conflict Pushes Europe Toward Fresh Energy Crisis

Europe spent years trying to shore up its energy defenses but war in the Middle East threatens to plunge it into another crippling gas crisis.

European natural-gas prices have surged roughly 70% since the U.S. and Israel attacked Iran. The widening conflict has halted traffic through the Strait of Hormuz, a chokepoint for energy markets that is a thoroughfare for one-fifth of the world's liquefied natural gas.

Iran Escalates Attacks on Gulf Nations as Conflict Widens

The four-day Middle East conflict widened on Tuesday as Iran stepped up missile and drone attacks in the region and Israel hit targets in Lebanon.

Iran targeted Israel, Saudi Arabia, the United Arab Emirates, Oman and Bahrain, continuing its counterattack after the U.S. and Israel began their joint attack on Saturday.

OpenAI CEO Sam Altman Defends Pentagon Work to Staff, Calls Backlash 'Really Painful'

OpenAI CEO Sam Altman defended his decision to allow the Pentagon to use its tools for classified work, fielding questions from staff at an all-hands meeting Tuesday about the principles behind the decision.

OpenAI announced its Defense Department deal on Friday, hours after Defense Secretary Pete Hegseth designated rival Anthropic a supply-chain risk, a move rarely used against a U.S. company. After backlash against the potential for OpenAI's deal with the Pentagon to allow for mass surveillance, the company changed its agreement to explicitly state that domestic surveillance isn't allowed.

CrowdStrike CEO Shakes Off Software Concerns as Fourth-Quarter Sales Rise

CrowdStrike's chief executive said demand and revenue are climbing despite market fears that the rise of artificial intelligence could upend software makers.

Companies are increasingly turning to CrowdStrike for cybersecurity because AI is posing more complicated and dangerous cyber risks, Chief Executive George Kurtz told investors Tuesday.

News Corp, Meta in AI Content Licensing Deal Worth Up to $50 Million a Year

Meta Platforms has signed a multiyear AI content licensing deal with News Corp that will pay the Wall Street Journal owner up to $50 million a year.

The deal will run for at least three years and allow Meta to use the media company's content from the U.S. and the U.K., according to people familiar with the matter. They said the deal allows Meta to retrieve new information for users of its artificial-intelligence products and to train on other content, such as story archives.

Write to [e-mail]

Expected Major Events for Wednesday

01:01/IRL: Feb Ireland Services PMI

07:00/NOR: 4Q Balance of Payments

07:30/SWI: Feb CPI

08:15/SPN: Feb Spain Services PMI

08:45/ITA: Feb Italy Services PMI

08:50/FRA: Feb France Services PMI

08:55/GER: Feb Germany Services PMI

09:00/ICE: Jan Harmonized CPI

09:00/ITA: Jan Unemployment

09:00/EU: Feb Eurozone Services PMI

09:30/UK: Feb UK Official Reserves

09:30/UK: Feb S&P Global UK Services PMI

09:30/UK: Feb Narrow money (Notes & Coin) and reserve balances

10:00/EU: Jan Unemployment

10:00/EU: Jan PPI

10:00/ITA: 4Q GDP

10:00/LUX: Feb CPI

10:00/CYP: Feb Registered Unemployed

11:00/IRL: Feb Monthly Unemployment

16:59/POL: Polish interest rate decision

All times in GMT. Powered by Onclusive and Dow Jones.

Write to us at [e-mail]

We offer an enhanced version of this briefing that is optimized for viewing on mobile devices and sent directly to your email inbox. If you would like to sign up, please go to https://newsplus.wsj.com/subscriptions.

This article is a text version of a Wall Street Journal newsletter published earlier today.

(END) Dow Jones Newswires

03-04-26 0016ET