European markets closed with widespread gains, driven by the new drop in oil prices and expectations of de-escalation in the conflict with Iran. The Stoxx 600 rose by 0.3% and approached its historic highs.
The financial sector led the increases, with a rise of over 1%, while energy showed the worst performance due to the correction in crude oil prices. Airlines also benefited from the prospects of lower fuel costs. Among companies, Vodafone fell back after warning of weakness in its German business, despite improving its annual targets.
By indices, the Ibex 35 rose by 1%, nearing 20,000 points, while the Euro Stoxx 50 gained 0.6%. The German DAX rose by 0.3% and the FTSE 100 fell by 0.3%. The Spanish selective showed better relative performance than the European average, supported by the recovery of the banking sector and lower pressure from energy prices.
The fall in oil continued to be one of the main catalysts of the session. President Trump indicated that he does not consider new military operations against Iran necessary at this time, reinforcing expectations of a possible diplomatic solution. The drop in Brent to around 90 dollars per barrel during the session particularly benefited sectors most exposed to energy costs and moderated inflation expectations in Europe.
In the United States, the overall CPI increased by 0.4% month-on-month in October, compared to the 0.3% expected by consensus and the 0.6% in September. Core inflation also rose by 0.3% month-on-month, driven by housing costs and other services. This data reinforced expectations of a new interest rate hike by the Federal Reserve in December.
At the European close, the S&P 500 fell by 0.8%, the Nasdaq by 1.2%, and the Dow Jones by 0.7%. The sales on Wall Street contrasted with the recovery of European markets, reflecting the impact of the inflation data on monetary expectations and technology valuations.
Sovereign yields showed divergent behaviour on both sides of the Atlantic at the beginning of the session, but ended up reversing the movement with rises in both geographies.
The yield on the 10-year German Bund stood at 3.31%, with an increase of 5 basis points. Meanwhile, the yield on the 10-year US Treasury rose by 13 basis points, to 5.01%.
Brent fell by 0.7%, to 91.9 dollars per barrel, after dropping to 90 dollars per barrel during the session, its lowest level since late August. The decline followed a 5.9% drop on Monday, although the continuation of shipping restrictions through the Strait of Hormuz kept uncertainty over supply.
The euro lost ground against the dollar. The EUR/USD fell by 0.7%, to 1.115 dollars per euro. The greater expectation of monetary tightening by the Fed favoured the recovery of the dollar.
