Stock markets celebrate the cessation of hostilities in the Middle East, alert to new tensions

Markets are celebrating the cessation of hostilities in the Middle East, although doubts remain about its implementation. US President Donald Trump announced a ceasefire between Israel and Iran late yesterday in Washington . Tehran carried out attacks against Israel "until the last minute," before 6:00 a.m. Spanish time (7:00 a.m. in Israel and 7:30 a.m. in Iran), the moment the truce officially began after a 12-day conflict. The US president warned: "The ceasefire is in effect, do not violate it." Shortly after, the Israeli government confirmed the agreement. However, after three hours of calm, the Israeli army reported that it had reactivated its anti-aircraft defenses after detecting missiles "launched from Iran." Tehran denounces the reports of new missiles being launched at Israel as false.

Optimism is evident in the stock markets. Asian indices have risen by more than 1%. Europe has posted gains of over 1.5%. The Ibex 35 has advanced more than 1% and recovered to 14,000 points.

Oil, meanwhile, is falling sharply. Brent , the European benchmark, fell more than 3% to $68 a barrel. West Texas Intermediate also fell 3% to $66.42 a barrel, its lowest level since June 11, the day of the Israeli attack. In just 24 hours, the price of oil has fallen more than $11, or 15%, following the dizzying turn of events: on Monday, a barrel of oil would have been around $80, following the United States' entry into the conflict. It then traded in the red amid expectations that Iran would not respond by attacking its oil supply, only to fall nearly 9% in the late afternoon following Tehran's measured attack on a US base in Qatar, before the halt finally announced by Trump.

Trump wrote on his Truth Social platform that the truce would begin six hours after its publication. He explained that Iran would initiate a 12-hour pause, followed by Israel, culminating in a formal end to hostilities 24 hours later.

Investors are thus regaining their appetite for risk after 10 days of uncertainty and instability, with fears that the escalation could lead to an Iranian blockade of the vital Strait of Hormuz shipping route. The ceasefire represents a relief from risks, although analysts warn that the situation remains unstable.

In Europe, the German Dax rose almost 2%. The Paris-based CAC gained 1.35%, and the Italian MIB gained 1.5%. Within the Spanish index, IAG and Amadeus led the gains, with increases of 6% and 3%, respectively. Mapfre and Fluidra added 3%. Repsol, on the decline, lost more than 2.5%. Enagás, Endesa, and Indra fell by 1%. In addition, the CNMV suspended trading of BBVA and Sabadell on the stock exchange on the day the Council of Ministers decides on the takeover bid.

Futures for the major US stock indices are trading higher (the S&P 500 is up 0.5% and the Nasdaq is up 0.7%). In the Asian session, the Hong Kong Hang Seng Index is up nearly 2%. The Nikkei closed up 1.16%, and South Korean stocks reached their highest level since September 2021. In contrast, the stocks most affected by the ceasefire are defense stocks.

"Although it is too early to know the solidity of the truce and Israel's response, the market is welcoming the de-escalation of tensions with relief," note Bankinter analysts. "Stock markets are reflecting the latest developments with gains due to the likelihood of a lasting pause in the Middle East conflict," note Renta 4. "It remains to be seen whether the parties respect the agreement and whether peace is as close as Trump claims, a source that is not always reliable. However, what does seem clear is that Iran is not inclined to engage in a direct conflict with the US, from which, at this point, it would be severely damaged, even jeopardizing the survival of the regime itself," indicate Link Securities.

In the foreign exchange market, the dollar resumed its decline as geopolitical risk eased. The euro rose 0.26% to $1.1608. Gold, considered a safe haven, fell 1% to $3,362 an ounce. Traders' attention today is also focused on Federal Reserve Chairman Jerome Powell's appearance before Congress, in case he makes any statements regarding the institution's monetary policy plans. Fed Chairman Michelle Bowman said last night that she was open to cutting rates in July, while Governor Christopher Waller said he would also consider a rate cut next month.

On the other hand, at a time of enormous volatility in energy markets, the European Central Bank (ECB) could cut interest rates further, ECB member Francois Villeroy told the Financial Times in an interview published Tuesday. “Looking at the current assessment of the markets so far, inflation expectations remain subdued,” he said, adding that a confirmation of the ceasefire between Israel and Iran could possibly lead to further accommodation in ECB monetary policy over the next six months.

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