The IBEX 35 kicked off the week with a slight uptick, in a context dominated by escalating conflict between Israel and Iran and growing anticipation ahead of upcoming central bank meetings.
The Spanish benchmark is seeking to recover ground after dropping 1.3% last Friday--when it lost the 14,000-point level it had reclaimed in May after 17 years below that mark--amid mounting concerns over the Middle East.
Investors' attention remains fixed on the volatile region, following recent Iranian missile attacks on Tel Aviv and Haifa. This development has triggered alarm among world leaders gathered at the G7 summit in Canada, as fears mount that the confrontation could spill over into a broader regional conflict.
Oil prices continue their upward trajectory, adding another 1% to last week's 13% surge, stoking fears of renewed inflation that could influence monetary policy decisions by the Federal Reserve (Fed), which is set to meet this week.
Monetary futures show virtually no chance of a cut to the Fed's current interest rate band--between 4.25% and 4.5%--and there are no expectations of a reduction before September.
The Bank of England is also scheduled to meet, with a Reuters poll indicating it is likely to hold borrowing costs steady on Thursday.
On the macroeconomic front, markets will be closely watching Tuesday's release of U.S. retail sales and industrial production data, as well as the German ZEW economic sentiment index.
"The (forgotten) geostrategic risk premium is rising and moving to the forefront. It's not so much the open war between Israel and Iran that's concerning, but the consequences of its likely geographic expansion (Syria, Lebanon...) and the external backers on each side (Russia, China, US...). If Iran closes the Strait of Hormuz, the US would be forced to get directly involved. More expensive oil means a risk of rising inflation, now also in Europe," analysts at Bankinter said on their Telegram channel.
"A 'wait and see' approach is prevailing at today's open, although with a slight downward trend, which is actually much less than what would be expected given the heightened risk," they added.
On the Madrid trading floor, at 0702 GMT on Monday, the IBEX 35 was up 46.00 points, or 0.33%, at 13,956.60, while the pan-European blue-chip index FTSE Eurofirst 300 rose 0.21%.
In the banking sector, Santander gained 1.36%, BBVA rose 1.08%, Caixabank advanced 0.85%, Sabadell climbed 1.01%, Bankinter added 0.77%, and Unicaja Banco was up 0.79%.
Among the major non-financial stocks, Telefónica rose 0.41%, Inditex slipped 0.50%, Iberdrola fell 0.52%, Cellnex dropped 0.91%, and oil company Repsol gained 1.67%.
(Reporting by Tomás Cobos; editing by Benjamín Mejías Valencia)
