FRANKFURT: European equities fell for a third straight week, their longest streak of losses in almost a year, as the deepening conflict in the Middle East stoked inflation fears and revived bets for interest-rate hikes.
The pan-European STOXX 600 closed 1.8 percent lower at 573.28 on Friday. It posted a 3.8 percent decline for the week.
What began as a calm week rapidly unravelled into renewed inflation fears, as strikes on energy infrastructure in the Middle East pushed oil prices higher, shattering hopes that risk assets had found a floor.
The European Central Bank kept the policy rate unchanged on Thursday, but policymakers expect to discuss hikes in the coming months.
“We think policymakers may already start hiking in April given that some have floated that possibility,” said Franziska Palmas, senior Europe economist at Capital Economics.
Traders are currently pricing in two 25-basis-point rate hikes by year-end, according to LSEG data, a far cry from the pre-war expectations of unchanged rates throughout the year.
Every major sub-index in the STOXX 600 ended lower, with defence stocks and utilities among the biggest drags, down 3.2 percent and 2.7 percent, respectively.
The heavyweight financial sector and the energy index lost 2 percent each.
The US military is deploying ?thousands of additional Marines and sailors to the Middle East, three US officials told Reuters.
Israel launched fresh attacks on Iran a day after US President Donald Trump told the country not to repeat its strikes on Iranian natural gas infrastructure.
Europe’s heavy reliance on Middle Eastern oil has left it exposed to rising crude prices as the Strait of Hormuz, which carries a fifth of global oil supplies, remains largely shut.
“What is not clear for now is the magnitude of this impact,” said Gilles Guibout, head of European equity, AXA IM Core at BNP Paribas Asset Management.
Travel and leisure stocks, among the hardest hit sectors in the recent selloff, slipped 1.1 percent.
Unilever ended 0.5 percent higher in a volatile trading session after the consumer goods group confirmed it was in talks with US-based McCormick & Company about selling its foods business.
Infineon shares jumped 1.5 percent after J.P.Morgan raised the German chips manufacturer’s rating to “overweight” from “neutral”.
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