Equities: Cautious start anticipated after US-Iran tensions – Danske Bank

Equity Markets Set for Sharp Decline Amid Rising Oil Prices

Analysts from Danske Research anticipate that stock markets will open over 1% lower, following significant losses in Asia after unsuccessful US-Iran negotiations led to a surge in Brent crude prices. The bank highlights that European indices, which outperformed on Friday, are likely to experience a downward adjustment today, even though last week saw strong investor interest in cyclical stocks and semiconductors compared to defensive sectors.

Futures Indicate Weak Start

Brent crude oil jumped above $100 per barrel on Monday morning, as talks between the US and Iran over the weekend failed to yield an agreement.

Stock futures are signaling a drop of more than 1% at the open, reflecting the widespread sell-off seen across Asian markets following the breakdown in US-Iran discussions.

While US markets had already ended lower on Friday—with the S&P 500 slipping 0.1% and high-yield credit down 0.4% despite positive inflation data—European indices performed better. The Stoxx 600 gained 0.4% and the OMX Nordic climbed 1.3%. This divergence suggests that European markets may see a sharper negative reaction today as they realign with global trends.

Notably, the technology sector stood out as one of the strongest performers in the US on Friday, even as software stocks continued to decline. The resilience of semiconductor shares could offset some of this weakness, which aligns with the research team's outlook.

Materials and real estate sectors also posted gains, whereas defensive industries such as health care and consumer staples faced declines. This pattern indicates that risk-taking remained prevalent among investors throughout the previous week, despite the negative market close.

As a result, equities and equity futures are trading in negative territory, while the US dollar has strengthened slightly.

(This report was produced with the assistance of artificial intelligence and reviewed by an editor.)