European Midday Briefing : Stocks Rise as Israel and Iran Keep Global Markets on Alert

MARKET WRAPS

Stocks:

European indexes rose Monday, as oil stocks gained along with the oil price.

After the significant escalation between Israel and Iran over the weekend, with both striking the other's energy facilities , the problem for investors is trying to gauge how prolonged and serious the conflict will be.

On Saturday, a senior commander in the Islamic Revolutionary Guard Corps warned Iran was considering closing the Strait of Hormuz through which a third of the world's oil flows.

There will be more important market-moving events this week.

The Federal Reserve will announce its latest rate decision on Wednesday, and investors are also awaiting policy rate decisions from Japan on Tuesday, the Riksbank and Norges Bank on Wednesday, and the Bank of England and Switzerland on Thursday.

There is also a meeting of the Group of Seven nations starting Monday with fresh hopes the summit will provide a platform for more trade deals to be announced.

Stocks to Watch

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U.S. Markets

Stock futures were staging an early comeback Monday after sharp declines on Friday, but as the conflict between Israel and Iran showed no signs of cooling, any recovery would likely be fragile.

Forex:

The euro's potential for further gains against the dollar was likely to be limited as oil prices, ING said, adding it estimates the currency's short-term fair value as just below $1.10

"The eurozone's dependence on energy exports should put a curb on the [euro's upside versus the dollar]."

The dollar's recent appreciation on the Israel-Iran conflict was likely mainly due to the oil-price rally as opposed to its safe-haven role, Commerzbank said.

"The dollar benefits from a rise in oil prices, as this improves the ratio of export to import prices, i.e. the U.S.'s terms of trade."

The U.S. is one of the world's largest oil producers thanks to the shale oil revolution.

Moreover, the dollar didn't rise across the board Friday, falling versus the more oil-dependent Canadian dollar and Norwegian krone.

That explains why the dollar's strength has corrected as oil prices have given up part of Friday's gains, it added.

The Swiss franc was unlikely to weaken significantly, even if the SNB reintroduced negative interest rates at Thursday's meeting, Commerzbank said.

XTB said the situation in the Middle East would need to deteriorate rapidly and enter a more dangerous phase for Bitcoin to fall below $100,000.

Bonds:

Eurozone government bond yields edged higher broadly in line with the magnitude of Treasury and JGB yield rises.

"Bunds and Treasuries remain torn between inflation jitters and risk-off as Middle East tensions intensify, and will probably continue to lack a clear direction," Commerzbank said.

Morgan Stanley remained long in Spanish government bonds versus Belgium at the long end. It also has a tactical long in Greece versus Germany at the short end.

In the medium term, the scope for significant intra-eurozone spread tightening was limited given valuations [are] at the most expensive levels in the post-Lehman period, it said, adding that in the short term, however, the picture was more benign.

Cross-asset comparisons weren't particularly challenging, and a background of positive fundamentals supported the periphery, it added.

KBC Bank said geopolitical headlines trump Monday's light economic data calendar as well as the Treasury's coming 20-year bond auction.

"The ever more uncertain context risks complicating tonight's auction more than last week's well-received 10-year and 30-year sales."

Treasury yields were attractive relative to Russell Investments' fair value estimate of 4.1% on the 10-year bond, it said, adding that its baseline was for moderating growth and underlying inflation, which supports a transition back to rate cuts eventually.

Energy:

Oil prices edged higher, adding to last week's surge after Israel attacked Iran.

"The nature of the attacks by both sides over the weekend suggests risks to the oil market have escalated," ANZ said.

"The main issue the market will have to watch for is whether Iran's retaliation broadens outside of Israel to disrupt oil flows in the Persian Gulf's Strait of Hormuz."

"Over 17 million b/d of oil supply transiting the Strait would be at risk," it added.

DBS projects oil-price spikes above $75 a barrel as possible but not sustained given OPEC+ production-cut reversals and trade war-related demand fears.

RBC Capital Markets said n early all of Iran's traceable cargoes feed into China 's independent refinery base, adding that China would be most affected by any disruption to crude flows from Iran.

Gas

European natural-gas prices rose.

"Iran doesn't export any meaningful supplies of natural gas, as its gas operations meet its domestic requirements," ANZ said.

"However, the Strait of Hormuz is an important waterway for LNG. It handles about a fifth of the world's LNG supply, mostly from Qatar."

Meanwhile, Israel shut down production at its biggest natural-gas field, the Leviathan, a key source of LNG supplies for Egypt.

Analysts warned this could prompt Egypt to increase purchases on the spot market in order to meet its domestic demand, tightening global supplies.

Metals:

Gold futures pared gains after rising close to a record.

Gold Chart

RHB said if the commodity broke above $3,500, i t would open the door for further gains , possibly toward $3,600.

Pepperstone said traders cut back on profitable longs in silver, platinum and palladium, potentially to raise cash in their portfolios or even flipping the exposure into gold, it added.

EMEA HEADLINES

Renault CEO Luca de Meo to Step Down

Renault Chief Executive Luca de Meo plans to step down in mid-July and pursue new challenges outside the automotive industry, with French newspaper Le Figaro reporting he is set to become the new boss of Gucci-owner Kering.

The struggling French luxury group is reportedly set to split the chairman and CEO roles currently held by Francois-Henri Pinault, who belongs to the family that controls the group and has held the joint position for 20 years.

ECB Shouldn't Rush Into Further Rate Cuts, Bundesbank's Nagel Says

The European Central Bank shouldn't rush into cutting rates further, given that inflation in the eurozone has reached its target level, the president of Germany's Bundesbank said Monday.

"We should continue to make decisions on a meeting-by-meeting basis depending on the data and not rush into anything," Joachim Nagel said in a speech in Frankfurt.

BOE Set to Hold Rates Again Despite Cooling Jobs Market

The Bank of England is set to leave its key interest rate on hold Thursday as it charts a middle path between other European central banks that have lowered borrowing costs more aggressively, and a Federal Reserve that has stopped cutting.

Like their counterparts at the Fed, policymakers at the BOE worry that a pickup in inflation driven changes in government policy may prove long-lasting, in part because households and businesses have only recently experienced a burst of inflation that they were initially told would be transitory, but proved not to be.

GLOBAL NEWS

Chinese Spenders Open Wallets as Factories Slow

SINGAPORE-China's factories felt the pinch from tariffs last month despite a trade truce with Washington, while real estate woes weighed on investment, adding to pressure on Beijing to take bolder steps to shore up growth.

Retail sales, however, grew faster than expected in May as consumers took advantage of government trade-in programs to snap up discounted home appliances and other products, data showed on Monday.

Israel Races to Reshape the Middle East With Few Checks

A year ago, Israel was struggling-bogged down in Gaza, surrounded by Iranian-backed enemies and under pressure from Washington to stop the fighting.

Now, it is reshaping the Middle East on its own terms and forcing the Trump administration to play catch-up as Israeli leaders ramp up attacks against Iran. The moves could upend global markets and remake geopolitics-and potentially draw the U.S. into a regional conflagration.

Israel Takes Control of Iran's Skies-a Feat That Still Eludes Russia in Ukraine

Within 48 hours of starting its war on Iran, Israel said it gained air superiority over the western part of the country, including Tehran. Israeli warplanes began dropping bombs from within Iranian skies instead of relying on expensive long-range missiles.

That is a feat that the giant Russian air force has been unable to achieve in Ukraine in 3 1/2 years of war. This setback is one of the reasons why Moscow's troops have been bogged down in grinding trench warfare, sustaining staggering losses, ever since they failed to rapidly seize Kyiv in February 2022.

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This article is a text version of a Wall Street Journal newsletter published earlier today.

(END) Dow Jones Newswires

06-16-25 0522ET