Truce optimism drives strong weekly gains
United States (US) equity markets finished higher last week after the US and Iran agreed to a two‑week ceasefire, ahead of formal peace talks in Pakistan over the weekend. For the week, the Nasdaq 100 surged 4.45% for its best week since November 2025, the S&P 500 rose 3.56%, and the Dow Jones added a cool 1411 points, or 3.04%.
Markets had pinned significant hopes on the weekend’s peace talks, expecting the warring sides to edge closer to a lasting deal. However, those hopes went up in flames after 21 hours of US–Iran talks ended without an agreement.
Ceasefire hopes fade as talks collapse
The main sticking points were Iran’s refusal to commit to halting its nuclear weapons programme, compounded by its continued control over the Strait of Hormuz and the minimal tanker traffic that has passed through the waterway since the ceasefire began.
The US President has since played his ‘Trump card’ (pun intended), confirming that the US Navy will impose a blockade on the Strait of Hormuz.
The move is designed to choke off the flow of Iranian oil. By doing so, the US aims to force Tehran’s allies and customers to put pressure on Iran to reopen the vital chokepoint, potentially resolving the impasse without committing ground forces to another protracted conflict.
This approach will undoubtedly strain Iran’s relationship with its largest customer, China. Having already lost Venezuelan supply earlier this year, Beijing now faces the potential loss of another roughly 2 million barrels per day.
Offsetting lost Iranian supply, Saudi Arabia announced over the weekend that it has ramped up production to 7 million barrels per day through its East–West Pipeline (built in the 1980s during the Iran–Iraq War specifically to bypass the Strait). The United Arab Emirates (UAE) is also continuing to ship 1.8 million barrels per day via its pipeline to Fujairah on the Gulf of Oman.
There are concerns that Iran, to counter this, may again target the East–West Pipeline with drones, as it did with limited success last week, or call on the Houthis to disrupt shipping through the Bab el‑Mandeb Strait.
Oil shock contrasts with equity focus on inflation and earnings
The weekend developments have left Nasdaq futures trading 213 points (0.85%) lower at 25,067, while West Texas Intermediate (WTI) crude oil has jumped 9% to US$104.25. The divergence is telling, oil is pricing in near‑term disruption, whereas equities appear to be taking the view that short‑term pain could ultimately lead to long‑term gain and an end to the current stalemate.
Away from the Middle East, attention this week will be on Tuesday night’s producer price index (PPI) release, where the core reading is expected to rise from 3.9% to 4.2%, the highest level since February 2023. The US first quarter (Q1) 2026 earnings season also kicks off in earnest, traditionally led by the large Wall Street banks.