Middle East Peace Deal Delay Threatens AI Rally

Author: Kathleen Brooks, Research Director UK

Date: 3 June 2026

Key Takeaways

• Continued hostilities in the Middle East lead to gains in oil prices.
• European stocks are under pressure due to geopolitical tensions.
• The OECD has cut its global growth outlook, highlighting risks to the AI sector.
• The AI rally faces challenges from economic realities.
• The US dollar strengthens amid rising tensions in the Middle East.
• Focus shifts to US labor market data.

Market Overview

As fresh Iranian strikes hit parts of the Gulf, European stock indices are experiencing downward pressure. The price of Brent crude oil has surged by 2%, surpassing $97 per barrel, as diplomatic efforts to resolve the ongoing conflict appear stalled. Investors may have prematurely discounted the potential impact of a recent Memorandum of Understanding between Iran and the US.

Economic Implications

Entering the fourth month of conflict, the energy price spike is becoming entrenched in the global economy. Recent PMI surveys indicate that inflation is affecting the manufacturing sector, with upcoming service sector data expected to reveal further impacts. The Eurozone's CPI report for May showed headline inflation at 3.2% and core inflation at 2.5%, aligning with ECB expectations. Consequently, a rate hike from the ECB is highly anticipated, with a 96% probability priced in for the meeting on June 11.

OECD Growth Outlook

The OECD has revised its global growth forecast down to 2.8% for the year, down from 3.4% last year. It warns that a prolonged closure of the Strait of Hormuz could lead to even lower growth rates of 2.1% this year and 1.8% next year, potentially pushing some countries into recession and increasing unemployment. The OECD also cautions that investment in energy-intensive sectors, including AI, may decline significantly, impacting stock prices of high-value tech companies.

Market Reactions

European markets are reacting negatively, with the DAX down 0.7% and the FTSE 100 showing only moderate losses, buoyed by a recovery in Howden’s stock following a significant acquisition announcement. The UK index is also benefiting from rising oil prices, with BP and Shell stocks increasing.

US Market Performance

US stocks have performed well this week, trailing only behind the Japanese Nikkei and Korean Kospi indices. However, futures indicate a potential pullback as investors digest the OECD's warnings regarding AI investments. Notably, Marvell's stock surged 32% following optimistic comments from Nvidia's CEO about its future valuation.

Upcoming Data

Attention will turn to the latest US jobs data, particularly the ADP private sector employment report, which is expected to show an increase to 117,000 jobs. A stronger-than-expected report could raise concerns about the Federal Reserve shifting away from its easing bias, especially following strong job openings data that has already put upward pressure on Treasury yields and the dollar.

Conclusion

The ongoing geopolitical tensions in the Middle East are significantly impacting global markets, particularly in the energy sector, while also posing risks to the AI investment landscape. Investors are advised to remain vigilant as economic data releases could further influence market dynamics.