Deutsche Bank Tiny Note: Iran III - Equities Don't Mind Oil Prices at $100
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Despite escalation in the Iran conflict pushing Brent crude 37% higher, European equities have demonstrated resilience, sitting only 0.3% above their post-conflict intraday lows. Deutsche Bank argues this signals that stock markets have largely digested current energy prices. Direct energy costs represent merely 1% of total sales for STOXX 600 companies, and historical precedent offers further reassurance; during 2012-2013, when Brent hovered near $100, the STOXX 600 surged over 30%.
Regarding indirect macro impacts, if elevated energy prices persist, eurozone GDP growth forecasts might require a downward revision of roughly 50 basis points. However, the recent 8% market sell-off has already priced in this adverse scenario. The bank contends that political dynamics, including high interest rates, elevated gasoline prices, and limited public appetite for prolonged conflict, are eroding Republican prospects in the upcoming midterm elections. Consequently, the US administration is more likely to declare victory and de-escalate rather than pursue a protracted engagement. Recent signals, such as calls to cease attacks on energy infrastructure and the resumption of tanker traffic, support this thesis.
Given this outlook, Deutsche Bank has closed its recommendation to hedge portfolios via forward energy contracts and reiterates its call to buy oversold cyclical and software stocks.