According to Barclays, the de-escalation strategy in the Middle East could be successful, aided by prudent positioning, however, the US-Iran peace negotiations will not be easy. Stock markets have recovered more than oil has recovered and the interest rate market remains on high alert. Meanwhile, the elections in Hungary offer an opportunity to change the dynamics of the EU and bring attention back to Ukraine.
Ceasefire and stock markets rally
The two-week ceasefire announced on Tuesday evening triggered a rally in stock markets and “strengthened the prevailing ‘Trump put'”, analysts note. The strong ‘short squeeze’ contributed to the stock markets recovering “more than two thirds of the decline recorded since the beginning of the conflict at the end of February”.
In Barclays’ view, further de-escalation remains “the most rational outcome, as Trump needs a way out given the growing political and economic costs of the war.” As a result, “with a systematic positioning on the conservative side”, the broker believes that “the path of least resistance for equity markets remains upwards”.
It is well known, however, that hostilities have not ceased and the talks in Pakistan – while not without obstacles – will be crucial for further progress.
Analysts also note that “stock markets appear slightly more optimistic about a happy ending than oil, with stock indexes now outperforming the decline seen in oil futures.”
Strong growth in equity inflows led by cyclical stocks
Global stock markets, Barclays highlights, record the “second consecutive week of inflows”. Total equity inflows rose sharply to $37 billion this week, a notable acceleration from $12 billion previously, driven mostly by U.S. and global equity funds. Funds from emerging markets and Europe (excluding the UK) also attracted sizeable inflows, while the UK and Japan lagged significantly, recording net outflows.
At a sectoral level, the “flows were decidedly pro-cyclical”. Technology and industry led the advance, supported by robust inflows into the financial sector. On the other hand, the energy sector lost ground, with flows essentially stable during the week. Defensive sectors continued to lag, with telecommunications, consumer staples and utilities lagging on a relative basis.
In Europe, sector flows were weak overall: energy and finance saw the largest outflows, while materials and telecommunications were comparatively more resilient.
Lasting scars from the oil shock
Analysts also believe “it is reasonable to expect that the oil shock will leave lasting scars on both growth and inflation compared to pre-war expectations, particularly for Europe”.
Inflation expectations “have not yet significantly reversed” and markets continue to price in “tighter financial conditions” ahead, including more than two rate hikes by the ECB by the end of the year, Barclays notes.
Elections in Hungary on Sunday
Hungary goes to the polls on Sunday, with b seeking another mandate after nearly 16 years in power. Orbán, the broker recalls, has increasingly clashed with the EU, taking a pro-Russian position and blocking consensus on support for Ukraine. This has “contributed to Hungary’s isolation and the continued freezing of EU funds”.
Recent polls indicate “growing momentum for the centre-right Tisza party”, which represents the “hardest electoral challenge” for Orbán in over a decade.
For Barclays, a new government represents “total regime change”, but a Tisza victory could still increase the “likelihood of a more pragmatic relationship with the EU”, reducing “Hungary’s role as a veto player” and “potentially facilitating cooperation on financing for Ukraine”.
Relevant appointments next week
Next week, major events monitored by investors that will influence markets include March Eurozone inflation, China’s Q1 2026 GDP and, from the United States, March industrial production and February total TIC (Treasury International Capital) net flows.
