European equities slip as US strikes on Iran cloud peace prospects

FRANKFURT: European shares slipped on Tuesday as doubts over the prospects of a deal to end the conflict with Iran weighed on sentiment after the US launched what it said were defensive strikes in the south of the country.

The pan-European STOXX 600 fell 0.6 percent to 628.01 points.

On Monday, the benchmark closed at its highest since February 27 - the day before the conflict started - and came within 1 percent of notching up an all-time high on hopes that peace in the region could be near.

However, the latest attacks and US Secretary of State Marco Rubio’s remarks that negotiating a deal with Iran could “take a few days” tempered those expectations and markets looked for any clues that tensions could escalate further.

Brent crude futures rose over 4 percent, stoking inflation worries as the euro zone is heavily reliant on oil imports through the Strait of Hormuz.

Most regional bourses traded lower, with London’s FTSE 100 the exception, rising 0.2 percent as it caught up after a UK market holiday on Monday.

However, gains on the UK benchmark were capped by a fall in BP, after the oil major ousted Chair Albert Manifold with immediate effect. Its shares dropped 4 percent.

Ferrari lost 8.4 percent after the luxury sports carmaker unveiled its first fully electric car, at a time when competitors, including Porsche and Lamborghini are scaling back their EV ambitions, citing weak demand.

The stock was on track for its biggest daily loss since October and weighed on the automobiles and parts sector that fell 1.9 percent.

European traders were also assessing comments from European Central Bank board member Isabel Schnabel, who said the central bank should raise interest rates in June even if ongoing peace talks with Iran result in a deal.

“While rates may remain volatile in the near term as central banks respond to inflation risks, we believe markets are overestimating how far tightening will go and underestimating the impact of slower GDP growth,” said Mark Haefele, chief investment officer at UBS Global Wealth Management.

Markets are currently pricing in about a 90 percent chance of a quarter-point rate hike at the ECB’s June meeting, along with at least two 25-basis-point increases by the end of this year, according to LSEG-compiled data.