Business Costs Surging Amid Iran War, Says JPMorgan Strategist

Business activity in the euro area unexpectedly shrank for the first time since late 2024 due to a steep drop in the services sector as the Iran war weighs on consumers. The Composite PMI compiled by S&P Global declined to 48.6 in April from 50.7 the previous month, dropping below the 50 threshold separating growth from contraction. In the UK PMI data showed that the private sector quickly bounced back from a slowdown caused by the Iran war as firms rushing to secure supplies and price pressures mounting. Hugh Gimber, Global Market Strategist, JP Morgan joined Stephen Carroll on Bloomberg Radio to discuss. he says business costs are 'rising sharply.'  A flare-up in tensions over the Strait of Hormuz sent oil higher as stocks fluctuated on concern that a prolonged closure of the waterway could worsen energy disruptions, boosting inflation and slowing the economy.

The standoff drove Brent to $103. A record-breaking rally in the S&P 500 wavered, with traders also sifting through earnings. Texas Instruments Inc.’s solid outlook lifted chipmakers for a 17th straight day. Software shares got hit as International Business Machines Corp. and ServiceNow Inc.’s results failed to ease concerns about artificial-intelligence disruption. Tesla Inc. slid after boosting its spending plan.

US forces patrol the Arabian Sea.

President Donald Trump ordered the US Navy to shoot any boat putting mines in the strait, while the military said it intercepted two oil supertankers that tried to evade its effort to prevent passage to and from Iran’s ports.

Iran noted it will not take part in negotiations while a US naval blockade on its ports is in place, and Iran state TV cited the foreign ministry as saying its armed forces are ready to respond to further threats.

Traffic through the Strait of Hormuz remains largely frozen, with only occasional movements of Iran-linked vessels breaking the lull.

“There’s a fair bit of uncertainty when it comes to diplomacy between the two sides,” said Fawad Razaqzada at Forex.com. “Less comforting is the ongoing lack of clarity around the Strait of Hormuz. With no clear plan to reopen it, uncertainty remains elevated.” Despite lingering geopolitical risks, the S&P 500 is poised for its best month since 2020 amid strong corporate profits, the revival of the AI trade and an otherwise resilient economy. Nearly 80% of the US equity benchmark’s firms have beaten first-quarter earnings estimates so far, according to data compiled by Bloomberg.

While volatility understandably increased with the onset of the Iran conflict, financial markets have proven relatively resilient, noted Adam Hetts and Oliver Blackbourn at Janus Henderson.

“Investors coalesced around the critical assumption that hostilities and the associated disruptions to the global economy would be short lived,” they said. “Our sentiment and positioning indicators showed drawdowns within several market segments reaching capitulation territory and could therefore represent attractive entry points.”

On the economic front, US business activity picked up in April, fueled by the strongest manufacturing growth in nearly four years as war-related supply disruptions prompted a scramble for supplies. Jobless claims rose last week, though they remain at a level consistent with low layoffs.

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