Stock market euphoria and falling oil prices after ceasefire in Iran

Barcelona / MadridMarkets have already reacted to the news of the ceasefire between the US and Iran, which includes the reopening of the Strait of Hormuz, through which 20% of the world's consumed oil and natural gas circulates. Asia's main stock markets have led the green trend in this last session, a trend that European and North American stock markets have subsequently followed.

The stock market euphoria has been accompanied by a drop in oil prices. Brent crude, the benchmark in Europe, has fallen by 13% and is now below $95 a barrel, leaving behind a month in which it had continuously surpassed the $100 mark. Despite this, it still exceeds the $72 per barrel price prior to the war in Iran.

On the other hand, the price of West Texas Intermediate (WTI) crude, the US benchmark, has seen a 17% reduction, also falling below $93. Natural gas on the TTF market in the Netherlands, the European benchmark, has also shown a similar trend: it has plummeted by more than 16% and during the early afternoon of this Wednesday was trading at 44.20 euros per megawatt-hour (MWh).

Stock markets soar

European stock markets have experienced a session of strong rallies, driven by a change in trend in energy prices. The Ibex-35, the benchmark index of the Spanish stock market, has been one of the main protagonists, recovering the psychological level of 18,000 points. This comes after a solid advance of 3.94%, a rise that puts an end to weeks of tension and uncertainty in the markets.

The engine of this generalized rise has been the notable drop in crude oil prices. After a month marked by the escalation of war tension and the cost of energy, the fall in oil prices has allowed companies that had suffered the most to breathe easier: the steel sector has led the gains with a very significant rise from ArcelorMittal (+12.89%) and Acerinox (+7.78%). Likewise, the airline holding company IAG has risen by 8.53%, recovering some of the ground lost in the last month.

Banking has acted as the second pillar of the day. Santander has led the purchases in the sector with an increase of 7.60%, closely followed by BBVA, which has gained 6.83%. On the other side of the coin is Repsol. The oil company, which had become the refuge stock par excellence during the conflict – with an accumulated appreciation of over 50% this year –, has seen its shares fall by 5.76%.

The green wave has not been limited to Madrid, but has spread throughout the Old Continent, with gains even higher than those of the Spanish index: the most significant improvement corresponded to the German DAX, which registered an increase of over 5%. Close behind followed the French CAC, with 4.49%; the Italian MIB, with 3.70%; and the British FTSE, with 2.51%.

Asia has guided the rallies

The main indices of Tokyo and Seoul have soared. The Japanese Nikkei, which groups the 225 most representative stocks in the market, has risen by nearly 7%, while the car manufacturer Toyota, the company with the largest local capitalization, has grown by 3.1%. As for the South Korean Kospi, it has grown by more than 6% and Samsung Electronics shares, for example, have increased by more than 7%.

The benchmark index of the Hong Kong Stock Exchange, the Hang Seng, has grown by 3.33% (842 points) during the session, reaching 25,959 points, while in mainland China, the benchmark index of Shanghai has risen by 2.69% and Shenzhen has gained 4.79%.

The dollar weakens

The weakness of the North American currency, weighed down by the fall in oil and the decrease in debt interest rates, has reconfigured the foreign exchange market. This loss of momentum for the dollar has given air to the euro, which is already nearing 1.17 dollars.

Commodities have also moved upwards: "precious gold" is climbing strongly above 4,700 dollars an ounce, while silver is trading at 75 dollars.

Warning to oil companies

Amidst this context of energy price instability, especially concerning oil, the First Vice President and Minister of Economy, Carlos Cuerpo, warned this Tuesday that the Spanish government is closely monitoring whether oil companies are passing on the VAT tax reduction from 21% to 10% to the cost of gasoline and diesel. Cuerpo, who appeared in Congress to explain the commercial relationship between Spain and the United States, warned that his department is conducting a daily check of prices at the more than 12,600 service stations in Spain, and cautioned that "it is equally important to see the translation" of the tax reductions approved by the executive "when prices are rising" as "at the moment when international fuel prices also begin to fall." The minister assured that so far they have observed a 90% application of the VAT reductions.

Nevertheless, the Spanish government continues to defend the approved measure, despite the European Commission's warning that the fuel reduction goes against EU rules. This Wednesday, the Third Vice President and Minister for Ecological Transition, Sara Aagesen, stated that the measure is "completely justified." "For now, we have it on the table for three months. We continue working on another package of measures and, of course, we are in contact with the European Commission and hope it will have no repercussions," Aagesen added.