The backdrop remains dominated by the ongoing stalemate in the Middle East conflict, which continues to drive up global prices. This was underscored by a U.S. inflation report released on Wednesday, further fueling concerns regarding the future trajectory of interest rates.
Fears of a protracted conflict between the United States and Iran, which could lead to the closure of the Strait of Hormuz - a vital artery for global fuel supplies - have dictated the downward trend in recent sessions.
U.S. President Donald Trump stated on Tuesday that he does not believe he will require China's assistance to end the war with Iran, though the comment came just ahead of his meeting with Xi Jinping. The American leader is scheduled to arrive in Beijing this Wednesday, with formal talks slated for Thursday and Friday.
On the macroeconomic front, U.S. consumer inflation rose in April at its fastest pace in three years due to the Middle East conflict, increasing the risk that the Federal Reserve may be forced to hike rates sooner than anticipated.
Markets have virtually priced out any possibility of a Fed rate cut this year. Meanwhile, expectations for a hike of at least 25 basis points at the December meeting have climbed to over 35%, up from less than 22% at the start of the week, according to the CME FedWatch tool.
Analysts at Bankinter noted in their morning briefing that this is a 'rebound session, with hopes pinned on a constructive outcome at the Trump-Xi Jinping meeting (Thursday and Friday), where the American president will be accompanied by CEOs of blue-chip companies (Nvidia, Apple, Blackrock, SpaceX...)'.
The firm also warned that 'the market is coexisting with geopolitics thanks to corporate earnings (+26.0% in the U.S. and +12.0% in Europe) and the AI boom led by semiconductors (+65.4% YTD)', although it emphasized that 'the Q1 2026 earnings season is drawing to a close and the market needs new drivers to continue advancing'.
Against this backdrop, at 0705 GMT on Wednesday, Spain's IBEX 35 was up 102.10 points, or 0.58%, at 17,675.70 points, while the FTSE Eurofirst 300 index of leading European shares gained 0.84%.
In the banking sector, Santander rose 0.98%, BBVA added 0.92%, Caixabank advanced 0.80%, Sabadell gained 0.83%, Bankinter appreciated by 0.77%, and Unicaja Banco climbed 0.66%.
Among non-financial heavyweights, Telefonica added 0.42%, Inditex advanced 0.21%, Iberdrola rose 0.08%, Cellnex gained 0.14%, and the oil major Repsol edged up 0.09%.
(Reporting by Tomas Cobos; editing by Jorge Ollero Castela)
