Report by Singular Bank
European stock markets recouped some of their losses after Brent prices stabilised. The move does not eliminate the geopolitical premium, but it did reduce the risk of an immediate escalation in energy prices and allowed risk assets to rebound.
The Ibex 35 rose by around 1.1% and regained the 19,300-point mark, in line with the Euro Stoxx 50, which also rose by nearly 1.3%.
In the United States, Wall Street was trading on a positive note at the close of European markets, buoyed by the technology sector and a less extreme assessment of risk in the Middle East.
The catalyst for the session was the moderation in Brent crude prices following the sharp rally the previous day. Investors were not buying into a complete de-escalation between the United States and Iran, but rather a lower probability of an immediate disruption to energy supplies.
This assessment helped European cyclical and industrial sectors, as well as energy-cost-sensitive stocks, to recover. The technology sector also found support, although the market continued to differentiate between companies with visible growth and those more exposed to demanding valuations.
In the UK, AstraZeneca weighed on the FTSE 100; the fall in its share price prevented London from fully participating in the European rebound, with the index closing slightly down.
The market was driven primarily by three factors: oil, geopolitics and fixed income, which remains at high levels.
European fixed income regained ground following the moderation in oil prices. Relief on the energy front has eased some of the immediate inflationary pressure and allowed for moderate falls in Eurozone yields.
The yield on the 10-year German Bund stood at around 3.08 per cent, down by nearly 1 basis point. In Spain, the yield on the 10-year government bond fell to around 3.53 per cent, a decline of approximately 5 basis points.
In the United States, the yield on the 10-year Treasury remained around 4.55 per cent, still close to recent highs. The US yield curve continues to be influenced by the risk of energy-driven inflation.
Brent crude retreated towards the $77 per barrel mark following the previous sharp rally. The fall is helping to stabilise market sentiment, although the Strait of Hormuz remains the main source of risk for energy and maritime transport.
Gold rebounded above $4,100 per ounce, supported by geopolitical uncertainty and a slightly weaker dollar.
In the foreign exchange market, the EUR/USD traded around 1.144, with the euro making slight gains.
