Equity markets rallied yesterday after U.S. President Donald Trump extended his Saturday ultimatum to Iran by five days, demanding the reopening of the Strait of Hormuz within 48 hours following reportedly "productive" talks with Tehran.
However, optimism regarding a swift end to the U.S.-Israeli conflict with Iran proved short-lived, as Tehran denied negotiating with Washington and launched multiple missile waves against Israel.
The energy shock is forcing governments worldwide to secure supplies and find ways to curb demand, while simultaneously altering the outlook for central banks, which may now consider interest rate hikes rather than cuts due to inflationary fears.
The U.S. Federal Reserve is expected to hold rates steady this year, with futures pricing in a slim probability of a hike, while the Bank of England and the European Central Bank are widely seen raising rates.
U.S. Treasury yields rose on Tuesday, Brent crude futures rebounded sharply above 100 dollars per barrel, and the dollar largely reversed the previous session's moves.
"It remains difficult to interpret the conflicting messages sent by both sides of the conflict, especially given the multitude of stakeholders involved, which forces one to read between the lines," Renta 4 analysts noted in a daily report.
"Nevertheless, the fact that the conflict has escalated to a point where we believe several involved countries (at least the U.S. and Iran) have an interest in ending it, coupled with reports of rapprochement, brings us to a point where a resolution can be envisioned—though it is by no means guaranteed—and the market has interpreted it as such," they added.
Following a 1.0% gain the previous day, the Spanish benchmark IBEX 35 was up 68.20 points, or 0.40%, at 16,956.40 points by 0805 GMT on Tuesday, while the FTSE Eurofirst 300 index of leading European shares advanced 0.40%.
In the banking sector, Santander shed 0.26%, BBVA gained 0.43%, Caixabank rose 0.68%, Sabadell climbed 0.30%, Bankinter added 0.08%, and Unicaja Banco edged up 0.24%.
Among non-financial heavyweights, Telefónica rose 0.90%, Inditex advanced 0.68%, Iberdrola gained 0.39%, Cellnex climbed 1.38%, and oil major Repsol rose 1.28%.
Fragrance and beauty group Puig stood out with a 14% surge following reports that it is in merger talks with Estée Lauder.
(Reporting by Tomás Cobos; editing by Benjamín Mejías Valencia)
