European equities fell on Wednesday as a resurgence of conflict in the Middle East pushed oil prices and bond yields higher.
The Stoxx Europe 600 index closed down 0.7% in London. Reciprocal strikes between the US and Iran tested a fragile ceasefire and drove Brent crude oil prices above $98 a barrel for the first time since June.
The index had pared some of its losses after US President Trump stated Iran had agreed not to possess nuclear weapons and that a US blockade of the Strait of Hormuz "could" be lifted before Labor Day. However, he later added this was "unlikely".
"The market is really tired of the Iran issue," said Amanda Lyons, Head of Research at Energy Group Capital. "We are one headline away from the next big move, in either direction."
Trade concerns also resurfaced. In an effort to rebuild tariff barriers overturned by the US Supreme Court, the US proposed a 10% tariff on imports from the European Union and the United Kingdom.
The tariff threat introduced new headwinds for European stocks, which were already facing the prospect of a European Central Bank interest rate hike this month following data showing inflation exceeded 3% in May.
"A June rate hike is largely priced in by the market and is consistent with ECB guidance," said George Moran, European Macro Strategist at RBC. "The real question is how officials will characterize what comes next: whether they will focus on softening inflation expectations and weak PMIs, or on new upside risks from oil prices and a potential Strait of Hormuz closure."
Meanwhile, corporate earnings remained resilient despite the war impact. Industria de Diseño Textil SA (IDEXF) shares rose 1.5% as its sales growth bolstered confidence in the Zara parent company amid a backdrop of weakening consumer spending. Discount retailer B&M European Value Retail SA (BMEVF) surged 15%, marking its best single-day performance on record, after reporting profits that exceeded expectations.
Deutsche Bank AG (DB) shares fell 3.7% after its Chief Financial Officer, Raja Akram, indicated the bank may set aside provisions for bad loans in the quarter ending June that exceed analysts' forecasts.
Comments