Report by Singular Bank
European stock markets closed virtually flat after a session that was split in two. The escalation between the US and Iran sent Brent prices soaring once again and pushed up the energy risk premium, but US inflation figures were more benign than expected, allowing the market to recoup its initial losses.
The IBEX 35 finished virtually flat (up 0.1%), having fallen by more than 1% during the morning, whilst the Euro Stoxx 50 posted the same gain. On Wall Street, the S&P 500 rose by around 0.4% and the Nasdaq performed better, buoyed by a rebound in semiconductor shares.
The Strait of Hormuz was once again the main source of tension. Brent crude surpassed the $86 per barrel mark, having risen by nearly 20% from its lows on 1 July, following the reinstatement of the US blockade on Iranian vessels and further attacks on oil tankers in the area.
The positive counterpoint came from the US: the June CPI came in below expectations, reducing the likelihood of an immediate interest rate rise. This development allowed Wall Street to turn higher and Europe to recoup much of its initial losses despite the rise in oil prices. The sector rotation was very clear. Rising energy costs favoured oil companies and firms linked to crude oil, whilst weighing on transport, airlines and cyclical consumer goods. At the same time, semiconductors and hardware regained ground as structural demand linked to AI infrastructure remained strong.
The weakest part of the market was software and technology services. IBM’s slump reinforced the view that corporate investment is shifting towards servers, storage, memory and computing capacity, putting further pressure on traditional software and systems integration businesses.
Fixed income once again reflected the divergence between the US and Europe. In the United States, the inflation data led to a clear fall in yields, as expectations of further rate hikes by the Fed eased.
The yield on the 10-year US Treasury note fell by around 4 basis points to around 4.59 per cent. In Europe, the movement was more subdued: the 10-year German Bund stood at around 3.11 per cent, with a slight rise, whilst the Spanish bond hovered around 3.57 per cent, just above the previous close.
Brent crude traded around $85 per barrel, with gains of close to 2.5 per cent.
Commodities and currencies
In the currency markets, the EUR/USD rose towards 1.142 after the moderation in US CPI data reduced expectations of an interest rate hike. The dollar lost some ground against the euro, although it retains defensive support due to the conflict in the Middle East.
