European equities tumbled to a near one-month low on Tuesday as the escalating conflict between Iran and Israel entered its fifth day.
With geopolitical tremors rattling the region, risk appetite took a hit, leaving the pan-European STOXX 600 index down 0.8% at 542.26 points. Monday’s respite from the selloff proved short-lived as the index snapped back into the red after breaking a five-session losing streak.
Markets are on edge as Iran and Israel’s aerial confrontation, sparked by Israel’s Friday strike on Iranian nuclear facilities, threatens to turn the oil-rich Middle East into a flashpoint.
While no supply disruptions have surfaced yet, the mere spectre of conflict has markets on high alert.
Oil prices ticked higher, boosting the energy sector to a near three-month high. It was the only sector, along with real estate, in the green.
“The bigger question is what will happen on the Strait (of Hormuz) and if there is a closure, it will have implications for oil prices,” said Jukka Jarvela, head of listed equities at Finland’s Mandatum Asset Management.
Meanwhile, investors are also bracing for the U.S. Federal Reserve’s policy verdict on Wednesday. Policymakers are widely tipped to hold rates steady.
European shares snap five-day losing streak
“The (Fed) meeting will not be uneventful. We anticipate the growth forecast for this year to be revised slightly downward,” said Paolo Zanghieri, senior economist at Generali Investments.
Meanwhile, a surprise uptick in German investor morale for June did little to buoy the DAX, which slid 1.1%.
A downbeat mood was mirrored across most major sectors on the STOXX 600, with heavyweight banks leading the charge lower, down 2.3%.
Middle East tensions add another layer of concern for investors already grappling with Trump’s tariff policies and their impact on global economic growth, as a 90-day pause on a wide array of tariffs is set to end on July 8.
Yet, amid the uncertainty, Europe has quietly benefited from a rotation out of U.S. assets this year, a trend Mandatum’s Jarvela expects to persist as structural and policy shifts play out across the bloc.
On the trade front, European Commission President Ursula von der Leyen was still aiming to reach a deal by July 9. German Chancellor Friedrich Merz expects to reach a deal before summer’s end.
UniCredit’s CEO vowed to gradually reduce the stake his bank has built in Italy’s top insurer Generali, ruling out large insurance deals for the group.
UniCredit lost 3.6%, while Generali slipped 1.2%.
Ashtead rose 4.1% after the construction equipment rental company forecast annual rental revenue growth of between flat and 4%.
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