European equities dip as investors track Mideast updates

FRANKFURT: European shares slipped on Wednesday as the evolving situation in the Middle East kept investors cautious, while they also assessed a range of corporate earnings.

The pan-European STOXX 600 index dipped 0.4 percent to 617.27 points. Most major regional bourses were lower, with Spain’s IBEX 35 down 0.5 percent, while France’s CAC slipped 0.6 percent. Markets weighed conflicting headlines, after US President Donald Trump said the war with Iran could end soon. However, Iran’s joint military command warned it would act to disrupt trade flows in the Gulf, the Sea of Oman and the Red Sea if the US blockade of its ports continued.

Optimism surrounding a diplomatic resolution has helped the STOXX 600 recover from its March lows, but worries over the impact of soaring oil prices have caused European equities to underperform against Wall Street. “European companies are very much dependent on oil prices. Big exporters like Germany are suffering … and that is having a negative impact on European markets,” said Axel Rudolph, senior market analyst at IG Group.

“That’s why they’re underperforming. Nobody sees the oil price coming down anytime soon, even if we were to have a peace agreement tomorrow.”

The European Union warned member countries that a prolonged supply shock due to the Iran conflict would force cuts to fuel consumption, EU diplomats told Reuters.

Corporate earnings remained a key focus for investors. Hermes plunged 8.2 percent after the French luxury group reported a hit to first-quarter sales linked to the Iran war.

Sales at Kering’s Italian flagship brand Gucci dropped by 8 percent in the first quarter from the previous year. Shares of the luxury fashion group tumbled

9.2 percent. Luxury sector led losses with a 2.5 percent drop and is the worst-performing sector so far this year.

“Even large luxury names are not immune to a cooling in demand given that shoppers are no longer flying to the Middle East. In Europe, people at the moment are more worried about their wallets so luxury goods’ shopping is on the back burner,” Rudolph added.