MILAN. Nervousness returns to the markets. Uncertainty in the Middle East weighs on the performance of European stock indices this morning. If yesterday trading closed with a rise, today sales prevail. The fear is dictated by fear of an Israeli reaction to Iran’s Saturday night attack. Israeli military leaders said the response would come shortly. This is while diplomacy is trying to put out the fire.
So by mid-morning the Milan index, FtseMib, lost more than a point and a half. Similar trend also for Frankfurt’s Dax and London’s Ftse100. In Milan there are only a few titles that are saved from sales with names such as Iveco, Saipem and Amplifon. The oil companies are also moving in negative territory with Eni losing more than one point. Sharp drops above 1% for many large blue chips, from Stellantis to Generali to Poste Italiane.
Meanwhile, the BTP/Bund spread returns to around 140 basis points with the yield on the Italian ten-year bond around 3.85%.
The focus is also on the trend of oil. A flare-up in the barrel would bring attention back to inflation and could slow down the monetary easing maneuvers of central banks. In the first part of the day, however, the WTI fell by half a point to 90 dollars a barrel while the WTI fell by 1% to 84.80 dollars.
All eyes are on the Middle East. In a note yesterday, S&P Global Ratings, commenting on the latest developments in the Middle East and the possible impacts of a regional expansion of the conflict already underway, analyzed that «Iran’s unprecedented military action against Israel increases the risk of a strong escalation of the conflict, which severely tests the limits of the basic hypotheses supporting the sovereign ratings assigned by the agency in the area”.
For analysts, the conflict will remain regional: «Although last weekend’s events signal a significant increase in geopolitical risk, the central thesis of S&P’s baseline scenario remains essentially unchanged. The rating agency predicts that the war between Israel and Hamas will continue in 2024 and that Gaza will remain its epicenter, with continued pressure on Israel (AA-/Negative/A-1+) from Iran (without rating) and its proxies. S&P also expects that intense diplomatic efforts and the limited (and widely expected) nature of Iran’s operations will prevent the immediate crisis from escalating into a large-scale regional conflict. However, S&P believes the situation will depend on the nature and extent of the Israeli response in the coming days. A large-scale conflict between states would be economically, socially and politically destabilizing for the entire region and its financial markets.”