Stock exchanges, war in the Middle East deteriorates trader sentiment

(Il Sole 24 Ore Radiocor) - The war in the Middle East deteriorates the sentiment of financial market operators, among whom there is greater pessimism about future prospects. This is what emerges from the March survey conducted by Assiom Forex, among its members, in collaboration with Il Sole 24 Ore Radiocor. The proportion of those expecting stock indices to fall over the next six months jumped to 47% compared with 14% in the previous survey in February and 9% in January (before the outbreak of the war between the United States and Iran). As a result, the percentage of optimists dropped: the number of respondents expecting stock markets to rise in March fell to 23% from 49% in February. 30% (down from 37%) expect stability. Overall, therefore, 53% of respondents expect indices not to fall from their current values, down sharply from 86% in the previous survey.

"The March Assiom Forex survey captures, for the first time, the tensions arising from the conflict in the Middle East," commented the association's president, Massimo Mocio, noting that "the share of those who expect stock markets to fall in the next six months is now in the majority.

The majority of Assiom Forex traders expect a period of stability for the euro/dollar exchange rate over the next six months, following the marked strengthening of the greenback triggered by tensions in the Middle East (since the end of February). 42% of those surveyed (up from 32% in February) indicated that the current strong relationship between the two currencies would be maintained, with a sharp drop, however, in expectations of an appreciation of the single currency (from 48% to 29%). On the other hand, the percentage of those expecting a strengthening of the greenback is rising sharply: from 18% in February to 29% in March. "In March," says Mocio, "the euro/dollar exchange rate recorded a slight decrease in volatility compared to February, with the dollar strengthening against the euro, moving to 1.15 from 1.17 at the beginning of the month. The majority of those surveyed now expect a period of stability in the next six months (42%), while the shares of those who anticipate a depreciation of the euro (29%) and those who anticipate a strengthening (25%) are almost equal".

The impact of the war in the Middle East also weighs on the spread outlook. For the first time since June, indications of a rise in the spread between Italian and German government bonds prevailed again, with 57% of respondents (up from 15% in February) seeing it in a range between 100 and 150 points. The share of those who expect a spread between 50 and 100 basis points has more than halved, from 85% to 36%, while 7% indicate a range between 150 and 200. "On the bond front," Mocio observes, "estimates for the BTP-Bund differential are also being influenced by geopolitical tensions, and the majority of those surveyed now expect a widening of the spread.

In the light of the escalation of the conflict in Iran, with the blockade of the Strait of Hormuz and the energy shock, the majority of traders (55%) expect a significant and persistent increase in inflation in the euro area, driven by rising oil and gas prices and global logistics costs. The remaining 45%, on the other hand, believe that price dynamics may be temporary in nature, assuming a possible stabilisation of energy costs in the medium term.