Investors Still See a Path Forward

March PMI readings are starting to show what wars eventually do, far from the battlefield: they make companies more cautious, weaken demand, and cloud decision-making. In Europe, private-sector growth slowed noticeably this month. Germany's growth eased to a three-month low. France contracted at its fastest pace since October. Britain also cooled to its weakest reading since September. These numbers suggest the Middle East conflict is already moving from geopolitical risk into everyday economic activity. PMIs in the US are due later this morning.

That helps explain the uneasy mood in markets on Tuesday. Wall Street looked set to open slightly lower. Europe drifted around flat. European stocks had just touched their lowest level in nearly four months, volatility remained elevated on both sides of the Atlantic, and investors were still trying to figure out whether Monday's burst of optimism was the start of something real or just a temporary sugar high.

The source of that confusion was not hard to find. On the 25th day of the war, Iran and Israel were still exchanging missile fire even after President Donald Trump said the United States had reached "major points of agreement" in talks with Tehran and delayed his threat to strike Iran's power grid.

The war has been playing out on two fronts at once: the battlefield and the gas pump. The world can handle a fair amount of political trouble: it has seen threats, walk-backs, denials, and chest-thumping before. What is harder to handle is oil above $100 a barrel and the feeling that events could still swing in either direction. 

Yesterday, after Trump spoke about "productive" talks and announced there would be no strikes against Iran's power infrastructure for five day, markets responded immediately. European stocks swung from steep losses to gains. Oil, which had been surging, dropped 10%. Wall Street rallied more than 1%.

By Tuesday morning, that optimism had cooled. Iran denied that meaningful talks were underway. Israeli officials signaled that Trump wants a deal, but that any real breakthrough remains uncertain. Reports also emerged that some U.S. allies in the Gulf could move closer to direct involvement in the conflict. Stock futures slipped, while oil rose again. 

Markets are not blindly betting on peace, but neither are they convinced this conflict has to spiral further. Investors responded so forcefully to even a modest sign of de-escalation because the logic is obvious: no one, including Washington, has much to gain from letting this drag on indefinitely.

Oil prices have become Iran's strongest source of leverage. As long as the regime remains in place and the conflict continues, the threat of prolonged energy disruption gives Tehran a way to impose costs far beyond the battlefield. Washington understands that. So do America's allies in Europe, the Gulf, and Asia. Countries that depend heavily on Middle Eastern energy imports, including Japan, have every reason to want this conflict contained quickly.

If there is no regime collapse and no quick, decisive military outcome, diplomacy starts to look less like a weak alternative and more like the practical path forward. That does not mean a settlement will be easy. It does mean that the economic pressure created by higher energy prices is pushing all sides toward at least considering one. This is where a little optimism is warranted.

The market swings themselves suggest that investors still believe a deal, or at least a pause, is possible. If traders thought escalation were inevitable, Monday's rally would never have happened. The fact that oil could fall so sharply on a change in tone tells you how much of the current panic is tied to uncertainty, not just hard reality.

Today's economic highlights:

On today's agenda: the manufacturing and services PMIs in Japan; the current account in Switzerland; the services, composite, and manufacturing PMIs in France and Germany; the services, composite, and manufacturing PMIs for the Euro Area; in the United Kingdom, the manufacturing and services PMIs followed by the CBI distributive trades; in the United States, the composite, services, and manufacturing PMIs, the API crude oil stock change, and the Fed Barr speech. See the full calendar here.

• Dollar index: 99.319
• Gold: $4,427
• Crude Oil (BRENT): $100.87 (WTI) $89.91
• United States 10 years: 4.38%
• BITCOIN: $71,154

In corporate news:

• Exxon Mobil awarded SBM Offshore front-end engineering and design contracts for an FPSO vessel tied to the Longtail offshore Guyana project, with construction still subject to approvals and a final investment decision.
• AerCap signed lease agreements with Ethiopian Airlines for two converted Boeing 777-300ERSF freighters, with delivery scheduled for Q2 2028.
• OpenAI is reportedly preparing to introduce ads for ChatGPT free and Go users in the US, with Criteo serving as its first ad-tech partner.
• Broadcom warned that AI chip demand is straining the supply chain and pushing manufacturing partner TSMC close to capacity limits.
• Tesla's February European registrations rose for the first time in over a year, while BYD matched its regional market share and Stellantis also posted higher registrations.
• Ford Motor is recalling more than 254,000 SUVs in the US due to software issues that can disable the rearview camera image and some driver-assistance features.
• Valero Energy reportedly shut its Port Arthur, Texas refinery after an explosion and fire at a diesel hydrotreater unit, though no injuries were reported.
• Amazon said drone activity disrupted its AWS Bahrain region again, prompting customer workload migrations as it works to restore operations.
• Puig shares jumped after Estee Lauder and Puig confirmed merger talks that could create a roughly $40 billion luxury beauty group.
• Apollo Global Management agreed to acquire Nippon Sheet Glass through a restructuring transaction that includes fresh equity support and debt-to-equity conversion by lenders.
• Galapagos said it is in advanced talks with Gilead on an autoimmune drug collaboration linked to Gilead's planned acquisition of Ouro Medicines.
• Gilead Sciences agreed to acquire Ouro Medicines for up to about $2.18 billion to strengthen its pipeline in autoimmune disease therapies.
• Oracle launched updated Fusion Agentic Applications and new AI Agent Studio features to let enterprises use coordinated AI agents across finance and other workflows.
• Vertiv agreed to acquire Italy-based ThermoKey to expand its thermal management portfolio and manufacturing capabilities.
• JPMorganChase announced €2.8 million in funding to support small businesses in France.
• Boeing said the FAA approved higher maximum takeoff weights for its 787-9 and 787-10 jets, allowing airlines to carry more payload or fly longer routes.
• Progressive priced a $1.5 billion senior notes offering split between 2031 and 2036 maturities.
• Netgear soared by 13% in after-hours trading after the FTC banned the import of consumer wireless routers manufactured overseas.
• Apple will hold its annual developers' conference in June.
• JPMorgan launched a basket of CDSs on Alphabet, Amazon, Meta, Microsoft and Oracle last month for hedging strategies, according to Bloomberg.
• Eli Lilly is to stop marketing certain forms of insulin in several countries, according to the EMA.
• OpenAI warns that its ties to Microsoft pose a risk ahead of a potential IPO, according to CNBC.

Analyst Recommendations:

• Ecolab Inc.: JP Morgan upgrades to overweight from neutral with a target price of USD 295.
• Ralph Lauren Corporation: Citi upgrades to buy from neutral and raises the target price from USD 360 to USD 400.
• Apa Corporation: Evercore ISI maintains its in-line recommendation and raises the target price from USD 25 to USD 40.
• Blackstone Inc.: BMO Capital Markets maintains its outperform rating and reduces the target price from USD 165 to USD 126.
• Blue Owl Capital Inc.: BMO Capital Markets maintains its outperform recommendation and reduces the target price from USD 15 to USD 11.
• Cf Industries Holdings, Inc.: HSBC maintains its hold recommendation and raises the target price from USD 91 to USD 130.
• Chevron Corporation: Evercore ISI maintains its outperform recommendation and raises the target price from USD 180 to USD 225.
• Diamondback Energy, Inc.: Evercore ISI maintains its outperform rating and raises the target price from USD 175 to USD 245.
• Docusign, Inc.: Daiwa Securities maintains its outperform recommendation and reduces the target price from USD 80 to USD 55.
• Fair Isaac Corporation: Baird maintains its outperform rating and reduces the target price from USD 1960 to USD 1547.
• Grab Holdings Limited: Macquarie maintains its outperform rating and reduces the target price from USD 6.76 to USD 5.31.
• Hamilton Lane Incorporated: BMO Capital Markets maintains its outperform rating and reduces the target price from USD 148 to USD 118.
• Kyndryl Holdings, Inc.: Morgan Stanley maintains its equalwt recommendation and reduces the target price from USD 28 to USD 13.
• Occidental Petroleum Corporation: Evercore ISI maintains its underperform recommendation and raises the target price from USD 38 to USD 58.
• Super Micro Computer, Inc.: Citi maintains its neutral recommendation and reduces the target price from USD 39 to USD 25.
• The New York Times Company: Citi maintains its buy recommendation and raises the target price from USD 77 to USD 94.
• Venture Global, Inc.: Goldman Sachs maintains its buy recommendation and raises the target price from USD 15 to USD 18.50.