The Spanish benchmark begins June following a 3.3% rally in May, a month in which, despite the gains, high volatility dominated due to the fluctuations in the standoff between the US and Iran. This conflict continues to block the flow of fossil fuels through the Strait of Hormuz, driving up oil prices and fueling global inflation.
Reports of fresh attacks in the Persian Gulf cast doubt on optimism regarding a reopening of the Strait of Hormuz and pushed crude prices higher.
While negotiators from Washington and Tehran apparently continue working to finalize a deal, it emerged on Monday that US forces had struck Iranian targets over the weekend and that Tehran had retaliated, while Kuwaiti defenses reportedly intercepted missile and drone attacks.
News of these exchanges did not overly surprise the market, following comments from Defense Secretary Pete Hegseth, who stated that the United States was ready to resume strikes against Iran if a pact was not reached. Middle East tensions were further exacerbated by the Israeli advance into Lebanon in its battle against Hezbollah, an Iranian-backed militia.
Nevertheless, confidence that the geopolitical situation will stabilize appears to remain dominant, even as the inflationary effects of oil prices, which are higher than before the war began three months ago, persist.
This inflationary impulse from crude continues to weigh on bond markets: the yield on the 10-year US Treasury note rose three basis points to 4.470%.
The market is pricing in a 50% probability that the Federal Reserve (Fed) will have to raise rates before the end of the year to prevent the price surge from becoming embedded in inflation expectations.
Several Fed members are scheduled to speak throughout the week, while key macroeconomic indicators include Monday's ISM manufacturing surveys and, most importantly, Friday's employment report. Forecasts point to a solid increase of 85,000 jobs, with the unemployment rate steady at 4.3%. Any stronger figure would further reduce the likelihood of a rate hike.
Despite the geopolitical noise, the artificial intelligence boom continued to act as a counterweight, with Asian markets supported by demand for semiconductors and AI-related equipment.
'(...) we have downward volatility, an underlying buying sentiment for equities and bonds, while oil is rebounding slightly after the weekend skirmishes between the US and Iran. These have shown more clearly that Iran can block Hormuz, but it is the US that decides whether the oil leaving the Persian Gulf (and the containers of whatever entering it) is sold in Asia or not', Bankinter analysts noted in their daily briefing.
'But as long as oil is around $90 as it is now, the situation will remain manageable', they added.
Against this backdrop, at 0700 GMT, the Spanish IBEX 35 benchmark was down 30.40 points, or 0.17%, at 18,332.50 points, while the FTSE Eurofirst 300 index of major European stocks retreated 0.11%.
In the banking sector, Santander lost 0.19%, BBVA fell 0.20%, Caixabank edged up 0.09%, Sabadell dropped 0.69%, Bankinter shed 0.31%, and Unicaja Banco lost 0.42%.
Among major non-financial stocks, Telefónica gained 0.28%, Inditex eased 0.41%, Iberdrola shed 0.31%, Cellnex fell 0.14%, and the oil major Repsol rose 1.45%.
(Reporting by Tomás Cobos; editing by Benjamín Mejías Valencia)
