Financial markets entered Friday cautious as developments in the Middle East undercut a ceasefire that had briefly eased risk sentiment. The agreed pause in hostilities between the United States and Iran appears under strain after Israeli strikes on Lebanon and a subsequent response from Hezbollah, while shipping through the Strait of Hormuz remains sharply reduced.
Investors were on edge after Iran said Israel's attacks in Lebanon violated its agreement with the United States, a statement that stalled some of the risk-on momentum that followed the ceasefire. In U.S. equity derivatives, S&P 500 e-mini futures were unchanged on Friday, while MSCI's broadest index of Asia-Pacific shares excluding Japan climbed 0.8 percent.
Israeli Prime Minister Benjamin Netanyahu said on Thursday he was seeking talks with Beirut, coming one day after the heaviest Israeli bombardment of the war that killed more than 300 people in Lebanon. On Friday, Hezbollah launched a missile at Israel, setting off air raid sirens that sounded in multiple locations, including Tel Aviv.
At the same time, the movement of commercial shipping through the Strait of Hormuz has yet to return to normal. Formerly carrying one-fifth of global oil and gas shipments before the war, the strait saw traffic on Thursday at well below 10 percent of normal volumes as vessels navigated both mines and bureaucratic requirements. Each vessel currently needs Iranian approval to pass.
U.S. President Donald Trump took to Truth Social to rebuke Iran, saying it had done a "very poor job" of allowing ships through the strait and writing "That is not the agreement we have!"
The strait's near-effective closure during the six-week conflict between the U.S. and Iran sent shockwaves through global markets as oil prices rose and energy supplies tightened. Brent crude gained 0.7 percent to $96.57 a barrel on concerns about supply, while Japanese Prime Minister Sanae Takaichi said Japan plans to release 20 days' worth of oil reserves from May to secure stable domestic supply.
The regional energy shock is showing up in price data beyond the oil market. Official figures showed factory-gate prices in China rose in March for the first time in three and a half years, signaling cost pressure extending beyond the conflict zone.
Equity markets in Asia were mixed, with Japan's Nikkei 225 up 1.6 percent after shares of Fast Retailing reached a record following a profit surge that beat market expectations. Early European trade showed modest gains in futures, with pan-region contracts up 0.6 percent, German DAX futures up 0.6 percent and FTSE futures up 0.2 percent.
Market participants were also watching a string of economic data and debt sales that could influence trading on Friday, including Germany's consumer price index and HICP for March, Germany's current account balance for February, and a U.K. auction of 1-month, 3-month and 6-month government debt.
Summary: The U.S.-Iran ceasefire is under pressure following Israeli attacks in Lebanon and Hezbollah retaliation, while diminished traffic through the Strait of Hormuz is lifting oil prices and feeding inflationary signals in global data.