European shares pull back as fragile US-Iran truce weighs on sentiment

FRANKFURT: European shares retreated on Thursday, after their strongest rally in over four years, as investors remained wary about a fragile US-Iran ceasefire and its implications for oil prices and global inflation.

The pan-European STOXX 600 index was down 0.2 percent at 612.59 points, after paring earlier losses following reports Israel and Lebanon could start direct negotiations soon.

Major regional bourses were also lower, with Germany’s DAX down 1.1 percent, while France’s CAC 40 fell 0.2 percent.

European markets rallied on Wednesday after US President Donald Trump agreed to a two-week ceasefire, sparking optimism that oil and gas shipments through the crucial Strait of Hormuz might resume operations.

However, Israel continued military operations in Lebanon on Wednesday while Tehran did not lift its near-total blockade of the Strait leading to renewed concerns over the economic impact of the conflict.

“(Yesterday’s) rebound was very overdone given the fact that it is still just the two-week ceasefire and today obviously there is concerns over the durability of that ceasefire and the key focus for the market remains the Strait of Hormuz,” said Fiona Cincotta, senior market analyst at City Index.

“With or without a ceasefire, if the Strait remains closed, the economic impact of the conflict remains … we’re seeing the market price in this caution.”

European markets have been under pressure since February when the conflict began, given the continent’s heavy reliance on oil imports and vulnerability to an energy shock.

The industrial sector weighed the most, down 0.5 percent. Germany’s Siemens dropped 2.1 percent while Airbus fell 2.5 percent.

Travel, banks and technology stocks all traded in the red, after logging strong gains in the previous session.

Software and IT stocks came under pressure tracking their Wall Street peers. German software maker SAP dropped 6.8 percent, hitting its lowest level since January 2024.