Scheduled talks between Washington and Tehran in Pakistan, alongside Israel's offer to negotiate directly with Lebanon, kept hopes alive, though the fragility of the ceasefire agreed upon this week prompted caution. Despite the pause, the selective index was on track for a weekly gain of nearly 4%.
The two-week truce between the United States and Iran showed clear cracks. Iran denounced continued Israeli strikes on Lebanon as a violation of the agreement, and the worst bombardment of the war -- which left more than 300 dead on Wednesday -- pushed the pact to the brink of collapse. Israeli Prime Minister Benjamin Netanyahu somewhat calmed the waters by announcing on Thursday his readiness to negotiate directly with Beirut, but Hezbollah launched a missile that triggered air raid sirens in Tel Aviv and other parts of Israel.
The Strait of Hormuz remained virtually blocked, with maritime traffic well below the usual 10%, while Tehran reaffirmed its control over the waterway through which a fifth of the world's oil and gas normally flows. U.S. President Donald Trump criticized Iran for doing a "very poor job" in reopening the passage.
Analysts at Renta 4 noted that stock markets were extending their weekly gains, "buoyed by the upcoming talks between the United States and Iran scheduled for this weekend and optimistic statements from President Trump regarding the possibility of a deal, as well as Israel's authorization to engage in ceasefire negotiations in Lebanon."
However, these observers added that, beyond the precariousness of the peace and "despite the ceasefire, the consensus is that energy prices and inflation will remain at elevated levels for longer, fading hopes for interest rate cuts that were being considered before the conflict."
Across the broader market, falling oil prices and a weaker dollar illustrated, for now, the market's bet on diplomacy: Brent was heading for a weekly slump of 11%, its largest since June 2025, while the greenback recorded its biggest weekly decline since January.
Meanwhile, Fed fund futures reflected a pull-forward in expectations for Federal Reserve rate cuts, although the odds of a reduction do not become significant until the period between April and June 2027, according to the LSEG IRPR tool.
At 0705 GMT on Friday, the Spanish blue-chip IBEX 35 was down 20.10 points, or 0.11%, at 18,084.80 points, while the pan-European FTSE Eurofirst 300 index edged up 0.12%.
In the banking sector, Santander rose 0.21%, BBVA gained 0.70%, Caixabank advanced 0.14%, Sabadell fell 0.28%, Bankinter appreciated 0.21%, and Unicaja Banco rose 0.15%.
Among large-cap non-financial stocks, Telefónica retreated 0.36%, Inditex shed 0.19%, Iberdrola lost 0.44%, Cellnex fell 0.07%, and oil major Repsol dropped 4.28%.
(Reporting by Tomás Cobos; editing by Benjamín Mejías Valencia)
