The main European stock markets are expected to open lower on Thursday morning in a context of risk aversion fueled by a new surge in oil prices as the conflict in the Middle East and its implications for the global economy remain the main source of concern for investors. Futures contracts currently suggest an opening decline of 0.9% for the Paris CAC 40, 0.5% for the Frankfurt DAX, and 0.1% for the London FTSE.
Caution prevails in the absence of signs of hope for a diplomatic solution to the armed conflict in Iran and amid the threat of slowed growth coupled with accelerated inflation due to soaring commodity prices. Market indices retreated in Europe yesterday (-0.2% in Paris, -1% in London, and -1.6% in Frankfurt), erasing some of the gains made during Tuesday’s strong rebound.
American markets closed Wednesday’s session on a mixed note, still influenced by geopolitical tensions. In this context, the Dow Jones fell 0.6% and the S&P 500 nearly 0.1%, while the Nasdaq 100 ended nearly flat.
Now firmly above 24, the VIX – often referred to as the “fear index” on Wall Street – remains well above the 20 point threshold considered indicative of a stressful situation.
The volatility seen in recent days in the oil market reflects uncertainty about the duration of the war and the possibility of an energy crisis that could have a lasting and significant impact on the markets. Despite the International Energy Agency’s decision to release 400 million barrels of oil from its emergency reserves to address disruptions from the Middle East war, oil prices continue to rise.
“All of this seems more like a band-aid on a broken leg than anything else,” says strategist Michael Brown at Pepperstone. “We’re replacing a flow of goods with a stock, so it doesn’t address the root of the problem,” he explains.
These concerns overshadowed optimistic comments made by Donald Trump yesterday regarding the likelihood of a swift end to the conflict. The U.S. president reiterated yesterday that the war would end “soon” and there was “almost nothing left to target” in Iran.
“At this point, the market is beginning to become saturated with sweet talk: investors now expect concrete actions rather than de-escalation promises,” concludes the analyst. As a result, Brent is currently up over 6% at $97.6 per barrel after briefly crossing the $100 threshold overnight, while West Texas Intermediate (WTI) crude oil is up 5.7% at $92.2.
As Oman evacuates all ships from its main oil terminal as a precautionary measure, some observers fear that these volatile movements may not be over.
“The weekly volatility of oil has just reached its historical peak on a weekly time scale, unseen since the beginning of data collection in the early 1980s,” notes analyst Ahmad Assiri at Pepperstone. “We are witnessing massive and brutal swings: a 20% surge, followed by another 20% increase, then a fierce selling pressure of nearly 20%, only to see prices return to the $100 barrel mark in record time,” he observes.
“This signifies a state of absolute uncertainty: we are facing a market solely dictated by urgent headlines,” he states. “With Brent back above the psychological $100 mark today, it becomes extremely difficult to convince traders to give up their risk premium. Instead, they are now factoring in the price of a complex, deteriorated, and lasting geopolitical reality,” concludes the Pepperstone analyst.
In the currency market, geopolitical concerns benefit primarily the yen and the dollar, resulting in a decline in the euro against other major currencies. Around 1.1550, almost at the yearly low, the euro continues to weaken against the greenback, indicating traders expect an extended period of uncertainty for the eurozone economy and ECB monetary policy.
With the unfavorable geopolitical backdrop and rising inflation expectations, U.S. Treasury yields are on the rise. The ten-year yield is above 4.20%. European bond markets are following suit, with the ten-year German Bund yield returning to its worst levels since late 2023 (2.93%), as are French OATs (3.57%).
While geopolitics is expected to continue dictating the trend, investors will closely watch the U.S. jobless claims data at 2:30 p.m. as well as the latest figures related to the American real estate market.
