With lasting peace, we return to the scenario we had at the beginning of the year
Redacción Mapfre
If the information about a potential lasting peace in the Middle East conflict is confirmed, it is likely that the stock markets will rise even further. “Overall, we are returning to the scenario we had at the start of the year, where we sensed that it could be a good year for equities,” says Ismael García Puente, Deputy Director of Investment Strategy at Mapfre AM, during an interview on Radio Intereconomía.
Despite the uncertain environment, the quarterly results are showing a positive performance. Expectations are rising in Europe, which is making them increasingly difficult to beat. In any case, the revisions have been seen mainly in the energy and commodities sectors; in the rest, forecasts have been revised downward. Overall, we expect earnings growth in the range of 10%–12%.
The latest production data (PMI) has been released, and it shows a decline in the services sector. García Puente believes this is the sector suffering the most from uncertainty and rising costs, “especially in the retail sector, where companies are raising prices and customers are consuming less, and we are seeing a destruction of demand.”
The very changing situation makes it difficult to make an accurate forecast about the price of oil. Most analysts had been forecasting a premium of 20%–30% above February levels, given that a large part of the Gulf’s energy infrastructure has been damaged and that very few ships are still passing through the Strait of Hormuz. We believe it will be difficult to return to pre-war prices, at least in the short term.
As for the evolution of inflation, the normal expectation is that we will now see a spike during the summer, which could rise to 3.5%. We have a clearer idea of what the ECB is going to do: it will carry out a shift in monetary policy that nobody wants but that the market is pricing in. The slowdown in economic activity does not guarantee disinflation, and prices are being shaped by the effects of the Middle East conflict. This leaves the ECB with little room for maneuver, as it will want to avoid a monetary policy mistake like the one it made in 2022, and it seems to us that one or two interest rate are already fully priced in.
