There was no breakthrough in Islamabad. After 21 hours of talks, Iranian and US negotiators left Pakistan without an agreement. That outcome was hardly surprising. The two countries have had no diplomatic relations for 47 years and are emerging from 40 days of war. Iran's nuclear programme remains the main sticking point, and one round of talks was never likely to be enough to bridge the gap.

The deadlock has prompted Donald Trump to harden his position once again. On Sunday, he said the US Navy would begin intercepting vessels linked to Iranian transit payments in the Strait of Hormuz. Overnight, Centcom clarified that the blockade would apply only to ships entering or leaving Iranian ports, starting this afternoon. For markets, the priority remains a reopening of the strait. Instead, there is now effectively a blockade layered on top of a blockade, alongside a fresh display of US power.

On the ground, little has changed. Traffic through the Strait of Hormuz remains largely frozen. The ceasefire brought temporary relief for oil prices and equities, but energy supplies are still under severe strain. The longer the disruption lasts, the greater the risk that higher oil prices become entrenched. In an interview with Fox News yesterday, Trump acknowledged that US petrol prices could stay high until the midterm elections in November.

Last week had marked a period of de-escalation, with the announcement of the ceasefire followed by negotiations in Pakistan. That easing allowed a clear rebound in equity indices: +3% for the Stoxx 600, +3.6% for the S&P 500. This morning, however, we have moved back into an escalation phase, with both sides hardening their positions. According to The Wall Street Journal, Donald Trump is considering a resumption of limited strikes on Iran.

Against that backdrop, oil is moving higher again this morning. Brent and WTI have both climbed back above the $100 mark. There is, however, one piece of better news on that front. Over the weekend, Saudi Arabia announced that its East-West pipeline is once again operating at full capacity, or 7 million barrels a day, just days after an Iranian attack damaged the infrastructure.

This week marks the start of the corporate earnings season, which I shall return to a little further down. What is somewhat unusual this quarter is that expectations seem fairly elevated. The war in Iran has darkened the macroeconomic outlook, with more inflation and less growth. Yet at the same time, analysts have generally revised their earnings estimates upwards.

For S&P 500 companies, analysts are expecting earnings growth of 17.6% in 2026, according to the FactSet consensus. In detail, it is logically the energy sector that is sending the numbers surging. The consensus has not changed much for the other sectors. Even so, the bar looks fairly high this quarter.

On the macro side, the key figure this week will be the producer price index, or PPI, in the United States. On Friday, March CPI came in at +3.3% year-on-year, the strongest increase since May 2024. The market did not really react to the release because the rebound had been expected. It was even slightly less pronounced than forecast. Even so, it is weighing on American households. The University of Michigan consumer sentiment index fell in April to its lowest level on record.

The news not to miss to start the week well:

  • In Hungary, Viktor Orban, defeated in the parliamentary election, is set to leave office after 16 years at the head of the country.
  • Moody's has maintained the sovereign rating at Aa3 with a negative outlook.
  • China has announced measures to demonstrate its "goodwill" towards Taiwan, following a meeting between Xi Jinping and Taiwanese opposition leader Cheng Li-wun.
  • On the corporate calendar, the first quarter results from major companies are beginning to land. LVMH tonight, ASML, Publicis, Kering and Ericsson in Europe, followed by the major
  • U.S. banks, Goldman Sachs and JPMorgan among them, along with other Wall Street names including Johnson & Johnson, Netflix, PepsiCo and Abbott.
  • On the macro calendar, there will be plenty of Chinese data and few top-tier indicators elsewhere. U.S. producer prices will nevertheless carry particular weight because of tensions in energy prices in March.

The blockade is weighing on indices. In Asia-Pacific, Japan, Australia, Hong Kong and South Korea are down between 0.5% and 1%. India is off 1.3%. The broad MSCI AC Asia Pacific index is down 0.9%. Europe is set to open lower.

Today's economic highlights:

On today's agenda: BOJ Governor Ueda's speech in Japan; In the United States, existing home sales MoM and total existing home sales. See the full calendar here.

  • GBP / USD: US$1.34
  • Gold: US$4,727.83
  • Crude Oil (BRENT): US$101.91
  • United States 10 years: 4.34%
  • BITCOIN: US$69,908.7

In corporate news:

  • GSK reported positive phase 1 trial data for its gynecological cancer drug, mocertatug rezetecan, showing high response rates and plans to advance to phase 3 trials in 2026.
  • Rio Tinto's U.S. boron assets have attracted interest from over a dozen bidders and could be valued at up to $2 billion.
  • The UK government signed a contract with Rolls-Royce SMR to deliver the country's first small modular reactors (SMRs).
  • HSBC and a Standard Chartered-led joint venture received Hong Kong's first stablecoin licenses to promote regulated digital assets.
  • Iberdrola has reportedly put the sale of a Spanish solar farm with a capacity of approximately 1 GW on hold.
  • Shell confirms its plan to produce gas from the offshore field between Venezuela and Trinidad.
  • Plenitude (ENI) is finalizing the acquisition of Acea Energia for €500 million.
  • Partners Group reiterates its forecast of gross fundraising between $26 billion and $32 billion for fiscal year 2026.
  • PolyPeptide is attracting interest from EQT and KKR for a potential acquisition, according to Bloomberg.
  • Stora Enso issues €1 billion in hybrid bonds.
  • Lufthansa pilots are called to strike amid a dispute over pensions.
  • Tesla announces the imminent rollout of its autonomous driving system in the Netherlands.
  • Vineyard Wind is suing GE Vernova to prevent it from abandoning a wind farm project.
  • Blackstone is considering a $2 billion IPO for its data center acquisition company.
  • McDonald's will add energy drinks and craft sodas to its menus, according to the WSJ.
  • Cisco is reportedly in talks to acquire the AI security startup Astrix for at least $250 million, according to The Information.

See more news from UK listed companies here

Analyst Recommendations:

  • Rentokil Initial Plc: Peel Hunt maintains its hold recommendation and raises the target price from GBP 3.52 to GBP 4.54.
  • Wickes Group Plc: Panmure Liberum downgrades to hold from buy and reduces the target price from GBX 230 to GBX 215.
  • Wizz Air Holdings Plc: Barclays maintains its overweight recommendation and reduces the target price from GBP 12 to GBP 11.
  • Antofagasta Plc: William O'Neil & Co Incorporated initiates coverage with a buy recommendation.
  • Lloyds Banking Group Plc: JP Morgan maintains its neutral recommendation and raises the target price from GBP 1.17 to GBP 1.21.
  • Fevertree Drinks Plc: Jefferies maintains its buy recommendation and reduces the target price from GBX 1100 to GBX 1080.
  • Diageo Plc: Jefferies maintains its buy recommendation and reduces the target price from GBX 2000 to GBX 1900.
  • Coca-Cola Hellenic: Jefferies maintains its buy recommendation and reduces the target price from GBX 5000 to GBX 4800.