IBEX 35 Trades Flat Amid Political Uncertainty and Market Expectations

The IBEX 35 index pauses its rally after a stellar week, with investors awaiting the Fed's decision and US inflation data. The index has seen gains in Q4 earnings and revenue, but faces uncertainty due to political developments in France and the global economy. Spanish stocks are also influenced by factors such as the BBVA-Sabadell takeover bid and the launch of digital trading on the Madrid Stock Exchange.

The IBEX 35 index, after a strong week, paused its rally on Wednesday as investors awaited the Federal Reserve's decision and US inflation data. The index, which includes Spain's largest companies, has seen gains in Q4 earnings and revenue but faces uncertainty due to political developments in France and broader global economic concerns.

In the Euro zone, government bond yields eased as investors awaited the US inflation data, which could help define the size of an expected Federal Reserve rate cut next week. The French 10-year yield remained little changed at 3.47%, while the German 10-year bond yield fell 1.7 basis points to 2.64% European bond yields edge lower ahead of US inflation data^[1]. The yield gap between French and German government bonds was at 82 bps, indicating a slight risk premium for holding French debt.

Spanish stocks were influenced by several factors. The BBVA-Sabadell takeover bid and the launch of digital trading on the Madrid Stock Exchange added to the market's volatility. Additionally, the political situation in France, where President Emmanuel Macron named Sebastien Lecornu as prime minister, has been a source of concern for investors. Macron's choice of Lecornu, a loyalist, indicates his determination to press on with a minority government that will not rip up his pro-business reform agenda European bond yields edge lower ahead of US inflation data^[1].

The market's focus is now on the upcoming US inflation data and the Federal Reserve's decision. Money markets see a 93% chance of a 0.25% rate cut and a 7% chance of a bolder 0.50% cut European bond yields edge lower ahead of US inflation data^[1]. The U.S. producer price inflation data due on Wednesday and the consumer price inflation report on Thursday will provide more clarity on the impact of US tariffs on prices.

In conclusion, the IBEX 35 index's pause is a reflection of the broader market's anticipation of key economic data and policy decisions. Investors are closely watching the Federal Reserve's actions and the US inflation data to gauge the direction of the market.