Nasdaq Hits Record as US ‘Decouples’ From Iran Conflict — But Europe Faces a 2026 Energy Recession
Quick Answer: The Nasdaq delivered its best weekly performance since November, European indices rose nearly 4%, and Chinese manufacturing showed signs of recovery. But beneath the surface, eurozone inflation climbed to 2.5% on energy costs, Germany’s growth forecasts were revised sharply lower, and Japan’s economy remains acutely exposed to rising oil prices. The rally reflects sentiment — the data reflects a more complicated reality.
EBM Analysis: Hope Is Doing a Lot of Heavy Lifting
Global markets had a strong week. But the strength was built on a single narrative — that the Iran conflict may be closer to resolution than it appeared — and that narrative remains unverified, repeatedly extended, and fiercely contested by Tehran. When you strip out the ceasefire optimism, the underlying data paints a more cautious picture across every major region.
United States
US equities ended a shortened trading week on a positive note, with the Nasdaq Composite, S&P 500 and Dow Jones all posting gains. The Nasdaq’s weekly performance was its strongest since November — a meaningful move driven by relief that Trump’s signals on potential de-escalation in Iran created enough optimism to override the persistent uncertainty around Hormuz.
Federal Reserve Chair Jerome Powell’s comments drove Treasury yields lower, easing inflation concerns and offering fixed income markets some breathing room. The economic data was mixed in ways that matter. Job creation remained steady and unemployment claims improved slightly — signs of labour market resilience that ordinarily would be straightforwardly positive. But job openings declined and hiring trends slowed, suggesting the labour market is cooling beneath the headline figures. Consumer confidence improved for a second consecutive month. Manufacturing expanded on stronger new orders. Cost pressures persisted. The picture is not recessionary — but it is not robust enough to absorb a prolonged energy shock without consequence.
Europe
European markets posted their strongest weekly performance in months, with the STOXX Europe 600 rising nearly 4% and major indices across Germany, France, Italy and the UK all advancing. The move was sentiment-driven — the same ceasefire optimism that lifted US markets carried across the Atlantic.
The underlying data was significantly less encouraging. Eurozone inflation climbed to 2.5% in March, driven almost entirely by the energy price surge flowing from the Iran war. Inflation in services and goods moderated — but energy costs are doing what energy costs always do when a major supply chokepoint closes: they spread through every layer of the economy before anyone fully accounts for the damage.
Germany’s position is the most concerning. Growth forecasts were revised downward significantly during the week as the impact of higher energy costs worked through Europe’s largest industrial economy. Germany’s energy vulnerability — the product of a decade of policy decisions that left it dependent on imported gas without a nuclear baseload — is now being stress-tested in real time. Spain’s manufacturing sector contracted. UK manufacturing remained in expansion but output declined for the first time in six months. Sweden bucked the trend with strong production and hiring growth. The divergence across European manufacturing is widening, not narrowing.
The one bright spot in the UK data was the housing market, where prices accelerated in March. That acceleration may not survive July’s energy bill spike for households not on fixed tariffs.
Asia
Japanese equities declined during the week — a meaningful divergence from the strength seen in Western markets, and one that reflects Japan’s particular exposure to the global oil market shock. Japan imports virtually all of its oil. Rising crude prices combined with uncertainty around Middle East shipping routes weigh directly on corporate margins and consumer purchasing power in a way that no amount of equity market optimism can fully offset.
The Bank of Japan rate hike expectations grew during the week — driven by inflation concerns linked to energy prices rather than organic domestic demand. The yen strengthened slightly on intervention signals. Industrial production and retail sales both declined. The combination of rising import costs, potential rate hikes and weakening consumer data creates a difficult macro environment for Japanese equities heading into the second quarter.
China’s markets showed more resilience, with both manufacturing and services activity improving — a gradual recovery supported by state-driven and private sector growth running in parallel. Rising input costs are compressing margins, but the trajectory is broadly positive. China’s diplomatic efforts alongside Pakistan to de-escalate Middle East tensions underscore the strategic importance Beijing places on restoring stability to global energy markets and the trade routes that underpin its export economy. China cannot afford a prolonged Hormuz closure any more than Europe can — and that shared interest in resolution may ultimately be the most important diplomatic pressure point available.
The Week Ahead
Tuesday’s Iran deadline is the single most important variable for every asset class this week. A credible ceasefire would push equities higher, pull oil lower, and give European and Asian policymakers the breathing room they urgently need. An escalation — strikes on Iranian power plants and the retaliatory response Tehran has promised — would reverse last week’s gains and accelerate the economic damage that is already building beneath the surface of what looked, for a few days, like a recovery.
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