Until mid-afternoon, European markets appeared to be buoyed by hopes of a de-escalation in the Middle East. Donald Trump had indeed claimed that his teams were making 'final efforts' to reach a peace agreement with the Islamic Republic. Even the statement from the Iranian Ministry of Defense, indicating a desire to pursue 'with greater vigor and speed, the production and development of equipment, armaments, and systems required by the armed forces', failed to dampen market optimism.

At the end of the day, oil prices are in sharp decline, with North Sea Brent shedding 3.5% to around 90.9 USD per barrel, while WTI concedes 4.2% to 87.5 USD.

It must be noted that OPEC members announced on Sunday a fourth consecutive increase in their quotas, by 188,000 bpd for July. Nevertheless, Frédéric Lorec, oil analyst at AlphaValue, points out that the cartel's actual production fell from 42.77 Mbpd in February to 33.19 million barrels per day in April, representing a deficit of 9.6 Mbpd directly attributable to the closure of the strait.

'They did not produce more; they produced massively less. Announcing additional barrels in this context is pure communication. With the strait closed, these barrels will not reach the market', the specialist emphasizes.

Air pocket in New York, turbulence in Paris

The late-day reversal appears to be linked to the sharp drop in the Nasdaq-100, which has shed 1.8% since the opening. The 'Mag 7' are under particular pressure, with Tesla and Apple down 3.5%, Microsoft and Nvidia losing 2%, and Amazon retreating 1.2%.

In France, the Parisian index managed to keep its head above water thanks to support from EssilorLuxottica (+3.78%) and luxury stocks such as Kering (+2.49%), LVMH (+2.04%), and Hermès (+1.34%), as the sector clearly benefited from hopes of a lull in the Middle East, one of its key markets.

Conversely, the semiconductor sector is losing momentum, with STMicro (-5.85%) and Soitec dropping 10.42%, still suffering from profit-taking following the stock's triple-digit rise since the beginning of the year. Also of note are the sharp declines in Siemens Energy (-5.92%) and Infineon (-3.30%), the laggards of the Euro Stoxx 50 index.


ECB meeting in focus

Markets now expect the European Central Bank (ECB) to raise its key interest rates by 25 basis points this Thursday, bringing the deposit rate to 2.25%, its level from almost exactly one year ago.

Indeed, headline consumer price inflation reached 3.2% year-on-year in May, compared to 3% in April, and remains significantly above the 2% target.

'This decision is largely priced in by the markets, which have considerably revised upwards their expectations for monetary tightening over the last two months', notes Kevin Thozet, member of the investment committee at Carmignac.

At Franklin Templeton, a second hike is also anticipated in September. 'The ECB must act with greater firmness to contain underlying inflationary pressures and their second-round effects, and we believe it will do so', says David Zahn, Head of European Fixed Income.

Data to digest

On the macroeconomic front, German industrial production by volume increased by 0.4% between March and April, according to the Federal Statistical Office (Destatis), after declining by 0.1% between February and March.

Across the Atlantic, the U.S. trade deficit narrowed more than expected in April. It stood at 55.90 billion dollars, against a forecast of 56.20 billion dollars and 56.60 billion dollars in March.

Furthermore, existing home sales rose to 4.17 million units in May (+3.2%), following 4.04 million in April, a figure revised upwards from 4.02 million. Analysts were expecting a smaller increase to 4.07 million units.

Finally, wholesale inventories grew by 0.6% in April compared to a 1.3% increase in March. They were expected to rise by 0.5%.