FRANKFURT: European shares slid to their lowest level in more than a month on Tuesday, pulled into a global equities rout as investors assessed the prospect of a prolonged Middle East war and the inflationary sting of a jump in oil prices.
The pan-European STOXX 600 closed 3.1 percent lower, falling about 5 percent from its record high close on Friday.
Many regional bourses and sectoral indexes, including the STOXX 600, clocked their sharpest one-day falls since April when US President Donald Trump’s “Liberation Day” tariffs rattled global markets.
“Any ceasefire for now looks like a remote possibility as Iran appears content with damaging Western interests in the Middle East … This is driving markets lower today as the threat of a protracted conflict becomes more realistic,” said Lindsay James, investment strategist at Quilter.
Every sector of the STOXX 600 was dragged into the downdraft, led by financials. The banking index sank to a near three-month low, with UK-focused lenders, seen as more exposed to Middle East risk, taking the hardest hits. HSBC was the biggest weight, down 5.2 percent.
Insurance also slid, with the sector down 4.2 percent, while industrial stocks lost 3.6 percent. Spain’s finance-heavy benchmark fell 4.6 percent to its lowest since mid-December, while Germany’s export-heavy DAX hit a three-month low.
Oil prices soared 7 percent in their third session of gains, with Brent hitting 19-month highs as the war entered its fourth day, with Iranian attacks disrupting commercial shipping through the crucial Strait of Hormuz.
Still, that offered little shelter for energy stocks which fell 1.4 percent, a reminder higher crude can be as much a demand shock as a profit tailwind when investors are in full risk-off mode.
Travel names remained under heavy pressure. Lufthansa dropped 4 percent, while British Airways-owner IAG fell 5.4 percent and Air France-KLM slid 7.9 percent.
Investors feared an energy shock will rekindle inflation while squeezing already tepid growth, as Europe depends heavily on products moved from the crucial corridor, and alternative routes could hike prices.
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