War or peace? The yo-yo movement continues in the Middle East. While observers continue to hope for a diplomatic outcome, the recent deterioration of the security situation complicates the prospects for a short-term settlement.

Furthermore, statements by the U.S. President claiming that Iran was on the verge of accepting the opening of negotiations with Washington were denied by the Iranian agency Tasnim, known to be close to the regime. 'Tehran has provided no response to the United States regarding the draft agreement proposed in recent days and has suspended exchanges', the agency specified during the afternoon.

Rising oil and 'tech-flation' on the menu

In this context, oil prices are rising sharply, with Brent up 2.4% at 98.1 dollars a barrel and WTI up 1.4% at 95.9 dollars, a move that supports oil majors such as TotalEnergies (+1.21%), Eni (+1.34%), Shell (+1.64%), bp (+1.84%), and Equinor (+1.91%).

Prices are also supported by the sharp contraction in U.S. inventories, which fell by 8 million barrels to reach 433.7 million barrels, while analysts were expecting a decline of only 4 million.

In any event, even if the Strait of Hormuz were reopened tomorrow, 'it would take nearly three months for maritime flows to return to their normal level, then three additional months to fully restore production capacities', noted Frédéric Ducrozet, Head of Macroeconomic Research at Pictet Wealth Management, this Wednesday.

This technical lag implies that tensions in the energy markets could persist for several months, even in the event of a rapid improvement in the geopolitical situation.

Inflation: the rate debate resurfaces

At Danske Bank, it is estimated that the partial closure of the Strait of Hormuz and the surge in energy prices should primarily slow global growth while fueling a temporary resurgence in inflation. The bank anticipates a more pronounced impact in Europe than in the United States, where investments related to artificial intelligence continue to support activity.

At Pictet Asset Management, Christopher Dembik points out that the current environment is also marked by 'tech-flation', a dynamic in which massive investments in artificial intelligence exert temporary upward pressure on prices, complicating the task for central banks.

In this regard, markets have already 'priced in' an ECB rate hike in June, given the latest data showing an increase in inflationary risks compared to March projections.

'The rate hike in June would therefore primarily serve to preserve the ECB's credibility in the fight against inflation and to anchor expectations', suggests Martin Wolburg, Senior Economist at Generali Investments. According to him, 'President Lagarde will likely want to leave the door open for further tightening if necessary.'

At Pictet, however, such a strategy is considered more of a reflex inherited from the 2022 inflationary shock than a current macroeconomic necessity. The bank believes that further monetary tightening would risk unnecessarily penalizing credit and financing for European SMEs.

Economic activity remains fragile

The latest activity surveys published today also point to a persistent economic slowdown.
In France, private sector services activity contracted in May at its sharpest pace in five and a half years: the final services PMI, published by S&P Global and HCOB, came in at 44.3 points, compared to 46.5 in April.

The situation is also fragile in the eurozone, with the HCOB composite PMI falling from 48.8 to 48.5 points between April and May, remaining below the 50-point threshold that separates expansion from contraction in activity. This trend signals a decline in economic activity at the fastest pace in a year and a half.

Furthermore, between March and April, industrial producer prices (PPI) increased by 0.6% in the eurozone and by 0.7% in the European Union, according to initial estimates from Eurostat, following increases of 3.4% and 3.1% respectively in March.

Across the Atlantic, the expansion of the U.S. private sector slowed slightly last month. The S&P Global composite PMI came in at 51.5 points, compared to 51.7 in April, amid moderate growth in new orders.

The ADP report also indicates that the U.S. private sector created 122,000 jobs last month, a figure close to economists' expectations, which averaged 117,000 creations.

Finally, the ISM services index recorded an acceleration significantly higher than expected. It rose from 53.6 to 54.5 points, while analysts anticipated only 53.7 points. The indicator thus remains in expansion territory for the 23rd consecutive month.

Stocks on the move

The Parisian index is notably penalized today by the decline of Stellantis and Renault, which dropped 4.04% and 2.71% respectively.

Conversely, Valeo jumped 18.39% within the SBF 120 index, buoyed by Jefferies raising its price target from 10.6 to 13.2 euros. The broker believes that the growth potential related to thermal and energy management activities for battery energy storage systems (BESS) and data centers is gaining credibility and could support a further re-rating of the stock.

Still in Paris, Veolia and Air Liquide posted the best performances of the day, gaining 2.22% and 1.90% respectively.

Elsewhere in Europe, Inditex, the parent company of Zara, gained 2.28% after reporting sales growth of 11.5% between May 1 and June 1 despite a challenging environment.

Partner Group shed 16.33% after announcing it would limit withdrawals from its 8.6 billion Global Value SICAV fund to 5%. This decision follows an increase in redemption requests, which reportedly reached 9.8% in the second quarter.

Finally, Clas Ohlson suffered (-4.9%) after the publication of its fourth-quarter results. Operating profit stood at 180 MSEK against a consensus of 193 MSEK, or 6.7% below forecasts. The operating margin also fell to 6.9% against the 7.4% expected.