The US-Iran ceasefire agreement may bring positive signals to European stock markets

Investing.com - In a report on Wednesday, Barclays said the U.S.-Iran ceasefire agreement could bring potential upside for European equities, reducing the risk of the worst-case escalation of geopolitical tensions and improving market sentiment.

The U.S. and Iran reached a two-week ceasefire deal late Tuesday. The agreement pauses a conflict that had lasted six weeks; it has already killed thousands of people, sparked widespread violence across the Middle East, and caused a major disruption to global energy supplies.

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The Iran war has heightened volatility in global markets because Iran has blocked the key oil shipping corridor, the Strait of Hormuz, leading to shortages in global crude oil and other energy supplies. Barclays said in its report that the ceasefire agreement has now removed the most severe downside risks, opening the door to a potential short-term rebound driven by hedge funds and CTA repositioning.

However, the firm warned that higher oil prices remain a key concern. Even if geopolitical tensions continue to ease, an energy shock is still expected to weigh on global growth and push up inflation.

Barclays also said that although artificial intelligence has lost some investor attention, the sector remains a key source of polarisation between the expected winners and losers in the stock market, as well as a growing macroeconomic concern. The company further said that the adoption of artificial intelligence will inevitably lead to large-scale unemployment, and it believes worries around private credit are manageable because the broader public credit markets are still performing well.

Barclays expects European corporate earnings growth of about 6% in 2026, down from earlier forecasts, assuming oil averages $85 per barrel. If oil keeps rising to $100, it could fully offset earnings growth.

Despite higher oil prices tightening financial conditions and complicating central bank policy, Barclays said the global economy is in a more favourable position than in previous shock scenarios. Lower oil dependence and ongoing fiscal support, along with AI-driven investment, are expected to cushion the slowdown.

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