European equities tick lower as failed US-Iran talks weigh on sentiment

FRANKFURT: European shares dipped on Monday as expectations of a swift resolution to the Middle East conflict dimmed following the breakdown of US-Iran negotiations and Washington’s decision to impose a blockade around the Strait of Hormuz.

The pan-European index was down 0.2 percent at 613.88 points, with the benchmark closer to its pre-war levels than the mid-March lows.

Major regional bourses were also lower, with Germany’s DAX and Spain’s IBEX 35 falling 0.3 percent and 1 percent, respectively.

The deadline for the start of a US military blockade passed, while Tehran threatened to retaliate against ports of its Gulf neighbours, if Iranian ports were threatened.

Rising tensions pushed oil prices above the USD100-per-barrel mark, adding to inflation worries that have remained on the forefront since the conflict began.

“The absence of progress in US-Iran talks over the weekend has challenged market optimism. This reinforces our view that investors should mitigate risks through diversification and hedging,” UBS analysts said.

“We continue to recommend staying invested, as we believe both parties are incentivized to find a resolution.”

Monday’s downturn follows a rally last week, when the STOXX 600 gained 3 percent on investor optimism that a temporary US-Iran ceasefire could lead to end of hostilities.

Financial shares added 1.2 percent. British fintech firm Wise rose 6.5 percent after its quarterly cross-border volumes surged ahead of its Nasdaq debut.

The aerospace & defense index was higher after coming under pressure last week. Germany’s Rheinmetall and UK’s BAE Systems were up over 2 percent each.

Communication services and healthcare weighed heavily on the benchmark index. Shares of Deutsche Telekom fell 6 percent after hitting an over two-month low earlier after JP Morgan trimmed the German firm’s price target.