Paris, like all European markets, starts the week in a very bad mood as the conflict in the Middle East, with heavy threats to the global economy, shows no signs of easing, quite the opposite. Just before noon, the CAC 40 is down by around 2%, around 7,516 points, while the pan-European index STOXX Europe 50 drops 2.2%, as does the DAX in Frankfurt, and the FTSE in London falls by 2.3%.
With the war now in its fourth week, the latest news is hardly encouraging, with Donald Trump threatening Iran with strikes on its electric infrastructure if the Strait of Hormuz is not reopened within two days.
An escalation of the worrying conflict for the economy and markets
The escalation of the American-Iranian conflict increases the risk of prolonged disruptions in energy supply, which can fuel inflationary tensions and harm economic activity globally.
“As long as the war continues, American stocks should hold up better than European ones,” said Christopher Dembik, investment strategy advisor at Pictet AM, adding that “for once, this is due to macroeconomic reasons.”
“As a net exporter of oil and gas, the United States only needs to manage the rise in pump prices while Europe faces the double problem of rising prices and energy shortages,” he points out.
However, the professional believes that in the long term, it is more difficult to determine which countries and sectors will fare the best, and caution should be exercised regarding economic cost forecasts of the conflict.
“History shows that markets can quickly recover when geopolitical tensions ease,” tempers Mark Haefele, Chief Investment Officer at UBS Global Wealth Management.
“Our fundamental advice remains the same, to stay strategically invested, but manage active risk by diversifying, hedging, and reducing excessive cyclical exposures,” he continues.
Oil benefits Technip Energies and burdens Air France-KLM
Currently, the high oil prices (99 USD per barrel on WTI, 113 USD per barrel on Brent) allow Technip Energies (3.1%) to lead the Paris SBF 120 and hurt Air France-KLM (-5.5%), among the biggest decreases in the index.
Elsewhere in Europe, Poste Italiane falls by 9.7% in Milan after launching a takeover bid for Telecom Italia, which rises by 2.4%. The operation, structured in cash and stock exchange, values the former telecom monopoly at 10.8 billion euros.
Pandora (9.6%) advances in Copenhagen and tops the STOXX Europe 600, despite an RBC note lowering the target from 600 DKK to 575 DKK. The Danish jeweler benefits from the drop in silver and gold (5%), reducing its production costs.
As for statistics, no major macroeconomic data is expected in Europe this Monday, but the beginning of the week will see preliminary PMI indices, followed by business climate indices in Germany and France.
