By European stock index futures pulled back further on Thursday as investors reacted to the soaring crude oil prices and the bizarre military options CENTCOM will offer President Donald Trump. The FTSE 100 futures dropped to £10,190, while those linked to the DAX, Stoxx 50, and CAC 40 fell by nearly 1%.
Crude oil price soars on new military options on the Iran war
Futures tied to top indices like the German DAX, Stoxx 50, and CAC 40 retreated as crude oil prices rallied. Brent, the global benchmark, soared to $126, its highest level since Russia invaded Ukraine. The West Texas Intermediate (WTI) and other oil benchmarks also continued soaring.
According to Axios, CENTCOM will present Trump with a few military options that it hopes will push Iranians to the negotiating table. All these options sound bizarre as they don’t explain how Iran will react.
First, Brad Cooper plans to have a “short and powerful” wave of strikes targeting infrastructure targets in hopes of breaking the negotiating deadlock.
The reality, however, is that Iran will also retaliate with similar strikes against Israel and Middle East neighbors. Its retaliations may include oil and gas infrastructure in order to push oil prices higher.
Second, CENTCOM is also planning to take over part of the Strait of Hormuz to allow commercial shipping, an option that would include ground forces. This option would leave US troops vulnerable to Iranian attacks.
Third, the US may decide to have special forces to secure Iran’s enriched uranium. This would also be a difficult option, as the uranium is buried deep under mountains and would expose troops.
The implication of all this is that crude oil prices will remain at an elevated level for a while. Such a move will hurt European economies that are contending with slow economic growth and a high inflation rate. Europe depends mostly on oil from the Middle East, with some airlines already canceling flights.
DAX, FTSE 100, Stoxx 50, and CAC 40 in focus ahead of interest rate decisions
European stock indices will react to the upcoming ECB and Bank of England (BoE) interest rate decisions. These meetings will come a day after the Federal Reserve left rates unchanged between 3.50% and 3.75%.
Economists expect the ECB to leave rates unchanged as it contends with the new reality of tempered economic growth and high inflation. This is a big change as the ECB had succeeded to bring inflation to its 2% before the war started.
The Bank of England is in a more difficult place as the UK inflation was still above 3% before the war started and the country remains in a stagflation period. Stagflation is characterized by high inflation and slow economic growth.
At the same time, several large European companies will publish their financial results in the next two days. In the UK, the focus will be on Rolls-Royce, NatWest, Standard Chartered, and Endeavor Mining.
The DAX Index will react to earnings reports by top companies like BASF, Deutsche Post, Volkswagen, and Linde. In France, companies like Schneider Electric, BNP Paribas, Société Générale, Credit Agricole, and Capgemini will release their numbers.
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