STOCK markets and the dollar both firmed yesterday as conflicting signals on US and Iran peace talks kept oil prices in check and the European Central Bank delivered its first interest rate hike in nearly three years.
The pan-European STOXX 600 and euro barely budged after the ECB’s widely expected 25 basis point rate increase to 2.25 per cent, while an early rally on Wall Street helped world share index edge off a one-month low it had hit following recent tech selling.
ECB chief Christine Lagarde said after the rate hike that the move had been a “unanimous” decision and that it was not “pre-committing to a particular rate path” given there were no signs yet of so-called “second round” inflationary effects.
Oil markets, meanwhile, were having another see-saw day.
Reports of ongoing talks between the US and Iran had pulled Brent prices back to $92 a barrel in London until US President Donald Trump started his day with a warning that Iran would be hit “very hard” later, and that he could assume “total control” of its oil and gas markets.
US stocks still opened higher though as Wall Street traders sought out technology stocks after a run of falls that has seen the high-flying sector drop 10pc from its recent highs.
Oracle’s shares still plunged over 10pc, however, after some lofty AI spending forecasts and plans to raise nearly $40 billion in debt and equity unnerved analysts.
“That’s (Trump’s warning) a pretty worrisome thought for the market but what we’re seeing here is a market that may have been grossly oversold over the past few days. And so that’s why we’re seeing some sort of a bump,” said Phil Blancato, chief market strategist at Osaic Wealth.
A re-escalation in hostilities in the Middle East began this week with Monday’s downing of a US Apache helicopter near the Strait of Hormuz, which sparked a series of tit-for-tat attacks across Iran and on US bases around the region.
Three Iranian sources and a European official told Reuters yesterday that efforts to reach a preliminary peace deal with Washington had intensified, however, and that messages were being exchanged over a proposed ‘memorandum of understanding’.
In currency markets, the ECB’s rate hike left the euro little changed on the day at just over $1.15.
The well-telegraphed move came with inflation in the 21-country currency bloc already above 3pc, well in excess of the ECB’s 2pc target, and economic growth weak - a backdrop that has economists split over the case for tighter policy.
It had also laid out a new set of in-house economic forecasts. They had inflation at 3.0pc this year, 2.3pc in 2027 and 2.0pc in 2028, bringing them closer to an “adverse” scenario the bank had published in March.
Growth forecasts for 2026 and 2027 were trimmed by 10 basis points.
“We are not in a situation where there are no shocks,” ECB chief Lagarde had said in Frankfurt.
Back in the currency markets, the US dollar index , which measures the greenback’s strength against a basket of six currencies, was 0.1pc higher at just above 100.
That was firmly within the tight trading range it has sat in throughout the past week,having been recently pushed to its strongest levels since the US and Iran began negotiating a ceasefire in April.
Market expectations on the timing of a possible Federal Reserve rate hike are also simmering.
Fed funds futures are now pricing an implied 51.6pc probability that the Fed will increase interest rates at its two-day meeting on October 28, according to the CME Group’s FedWatch tool.
The yield on the US 10-year Treasury bond inched down to 4.52pc, while Germany’s 2-year yields, which are the most sensitive to the ECB’s rate moves, dipped to 2.66pc. They reached 2.77pc in late March, the highest since July 2024.
In the crypto markets, bitcoin climbed 2pc to $63,034 while ether rose 1.5pc to $1,654, finding some footing after a selloff as the upcoming SpaceX IPO drove a rotation out of cryptocurrencies and other speculative assets.
Gold ticked 0.3pc higher to $4,083 after a four-day run of falls that had left it at a more than six-month low.
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