Despite the modest bounce at the open, the monthly performance remains deeply in the red. The Spanish benchmark has shed more than 7% in March; if confirmed at the close, this would mark its worst monthly performance since June 2022, when markets were reeling from post-pandemic inflationary pressures and recession fears.
Against this backdrop, Brent crude is on track for a monthly gain of over 55% -- its largest monthly increase on record -- while the debt market has undergone a severe adjustment in anticipation of tighter financing conditions. Meanwhile, the dollar hovered near an eight-month high, bolstered by its safe-haven status.
On the geopolitical front, one month into the conflict, investors continue to react to headlines regarding escalating tensions and U.S. and Israeli strikes against Iran. Sentiment improved slightly following a Wall Street Journal report suggesting that Trump told advisors he would be willing to end the military campaign against Iran even if the Strait of Hormuz remained largely closed.
The prolonged closure keeps the spotlight firmly on energy prices. The Strait of Hormuz has been effectively blocked since the start of the war on February 28, although two Chinese container ships managed to transit on Monday in their second attempt to exit the Persian Gulf after turning back on Friday, according to maritime tracking data.
Furthermore, Iran attacked and set fire to a crude oil tanker off the coast of Dubai on Monday, while Trump warned that the U.S. would destroy Iran's energy plants and oil wells if the country failed to reopen the Strait of Hormuz.
Fears of more persistent inflation have led the market to price in higher-for-longer rates from major central banks, battering fixed-income assets. In the United States, the Federal Reserve is now expected to leave rates unchanged this year, a sharp reversal from the more than 50 basis points of cuts priced in prior to the war.
Bankinter noted that trading volumes may be thinner due to Holy Week, with the conflict and concerns surrounding Artificial Intelligence and private equity sectors serving as the primary market drivers.
"We are entering a phase of tense coexistence with uncertainty over the war in Iran, until a resolution occurs or can be glimpsed. In parallel, there is confusion regarding the impact of AI (reignited since Friday specifically concerning cybersecurity) and some nervousness regarding credit-focused Private Equity," analysts said in a morning note.
At 0702 GMT on Tuesday, the Spanish IBEX 35 was up 44.50 points, or 0.26%, at 17,013.70 points, while the pan-European FTSE Eurofirst 300 index edged up 0.06%.
In the banking sector, Santander rose 0.48%, BBVA added 0.33%, Caixabank advanced 0.25%, Sabadell gained 0.43%, Bankinter was flat, and Unicaja Banco rose 0.16%.
Among other heavyweights, Telefónica added 0.40%, Inditex advanced 0.24%, Iberdrola gained 0.35%, Cellnex rose 0.07%, and oil major Repsol shed 0.99%.
(Reporting by Tomás Cobos; editing by Benjamín Mejías Valencia)
