Report by Singular Bank
European stock markets closed the session with widespread losses, weighed down by rising oil prices and with all eyes on this Thursday’s ECB meeting. The IBEX 35 fell by 0.1%, and the Euro Stoxx 50 dropped by 0.1%.
At the close of European trading, Wall Street, by contrast, was showing some gains.
Tensions in the Middle East intensified over the weekend, with reports of further air strikes driving the price of Brent crude above $90 per barrel at the open, fuelling inflationary fears and risk aversion in Europe.
A survey published by the ECB today reveals that European businesses faced higher interest rates and tighter credit conditions in the second quarter, with SMEs particularly hard hit. Ahead of the ECB meeting this Thursday, the consensus points to a pause following June’s rate rise, but the risk of further tightening is beginning to be considered if energy inflation persists.
In the UK, the new Prime Minister, Andy Burnham, on his first day in office, stated that he would seek “any flexibility” within the current fiscal rules to finance investment. 10-year gilts rose by 7 basis points to 5.02 per cent, and the FTSE 100 felt the impact.
In the US, chip stocks (Nvidia, Broadcom) rebounded strongly (up 2.3% for the sector index) after falling into bearish territory last week. Alphabet rose further on reports that it is developing its own new AI chip.
Fixed Income
In the fixed income market, the across-the-board rise in yields reflects an environment of mild risk aversion combined with inflationary pressures stemming from rising oil prices.
The yield on the 10-year US Treasury note rose to around 4.59 per cent, an increase of nearly 4 basis points. In Europe, the 10-year German Bund rose to 3.15 per cent, up 2 basis points, whilst the 10-year Spanish bond rose to 3.61 per cent, also up by nearly 1 basis point.
Commodities and currencies
Brent crude surpassed $88 per barrel and WTI $82 per barrel, buoyed by the escalating US–Iran conflict and restrictions on maritime traffic in the Strait of Hormuz.
Gold remains at around $4,010 per ounce, whilst silver rose by nearly 2% to $57 per ounce.
In the currency markets, the EUR/USD wastrading around 1.142, with the euro losing some of its relative strength against the US dollar.
