by Diana Mandia
PARIS (Reuters) – The main European stock markets are expected to fall sharply at the opening on Friday, as reports that Israel launched an attack on Iran reinforce fears of an extension of the conflict in the Middle East, which pushes investors towards safe haven assets and drives up oil prices.
According to the first available indications, the Parisian CAC 40 could lose 1.1% at the opening. Futures contracts report a fall of 1.53% for the Dax in Frankfurt, 1.01% for the FTSE in London and 1.37% for the Stoxx 600.
Despite calls for restraint, Israel, according to three sources familiar with the matter, launched an attack on Iran on Friday, and Iranian state media reported that Israeli drones were destroyed by Iranian forces after Tehran’s response to a suspected Israeli strike against the Iranian embassy in Syria on April 1.
“Given that the market has no idea of the duration or extent of the conflict, there is no compelling argument for maintaining large risk positions heading into the weekend. Risk assets should stay behind,” said Prashant Newnaha, rates strategist at TD Securities in Singapore.
Geopolitical tensions add to an already subdued mood in markets during the week and are likely to increase inflationary pressure at a time when central banks, and particularly the Fed, are delaying the prospect of a reduction rates in the face of resistance from prices and the economy.
The situation risks pushing into the background a new round of corporate results in Europe, notably Sodexo, as well as producer prices in Germany and retail sales in the United Kingdom expected at 06:00 GMT.
A WALL STREET
The New York Stock Exchange ended mixed on Thursday, with economic data and comments from Federal Reserve (Fed) officials supporting the hypothesis that the central bank is waiting longer than expected to lower rates.
The Dow Jones index gained 0.06%, the broader S&P-500 lost 0.24% and the Nasdaq Composite fell 0.52%.
Futures contracts on the three indices are currently down more than 1%.
IN ASIA
The Tokyo Stock Exchange fell on Friday, reaching its lowest levels in more than two months, weighed down by values linked to chips in the wake of Taiwanese manufacturer TSMC, and by the escalation in the Middle East.
In China, the composite index of the Shanghai Stock Exchange fell by 0.36% and the CSI 300 of large capitalizations lost 0.83%.
The Hong Kong Stock Exchange fell 1.24%.
RATES / EXCHANGES
Bond yields fell on Friday, favored by the movement towards safe haven assets following news of the Israeli attack on Iran.
The yield on ten-year Treasuries lost more than 8 bp to 4.5632%.
On the foreign exchange market, the wave of risk aversion is pushing investors to turn to the Swiss franc and the yen.
The dollar gained 0.07% against a basket of benchmark currencies and the yen rose 0.19% to 154.34 per dollar, after rising more than 0.6% in response to reports of the attack against Iran.
The euro fell 0.12% to 1.063 dollars.
OIL
The renewed geopolitical tensions are supporting crude prices.
The barrel of Brent rose by 2.09% and that of American light crude (WTI) gained 2.3% after the information on the attack against Iran.
Iran is OPEC’s third largest oil producer and pumps 3% of total world production.
(Written by Diana Mandia, edited by Blandine Hénault)
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