European shares eke out slim gains on luxury rebound even as war risks persist

FRANKFURT: European shares ended Wednesday with slim gains as a strong rebound in luxury stocks countered weakness in telecom and technology shares, but escalating Middle East tensions continued to weigh on sentiment.

The pan-European STOXX 600 index inched 0.12 percent higher to 642.84 points.

Investors had hoped that the start of the earnings season this week would redirect attention away from geopolitics and back to corporate fundamentals, providing a fresh impetus to equities.

But the STOXX 600 has gained just 0.27 percent so far this week, and ASML ended 0.41 percent lower on the day, erasing gains from earlier in the session despite raising its 2026 sales forecasts.

Although several heavyweights are yet to report results, the limited optimism in markets on Wednesday illustrates the high bar corporations have to clear to lure investors to equities, especially as the US-Iran conflict rages on.

“While there is some good earnings news and some positive news for some stocks in Europe, the bigger picture is that we may be a little bit more defensive, just because of geopolitical risk once again,” said Michael Metcalfe, head of macro strategy at State Street.

The US conducted a new wave of strikes against Iran, while Tehran threatened to shut off more regional energy exports.

The conflict has sparked uncertainty about interest rates, as central banks around the world try to gauge what the inflationary impact of the war will be.

European Central Bank policymakers called for vigilance in setting interest rates on Wednesday but stopped short of advocating for tighter policy, noting long-feared second-round inflation effects had yet to materialise.

Germany’s benchmark declined 0.59 percent, weighed down by Infineon Technologies’ 6.28 percent drop.

Still, the government’s plan for higher defence spending “is significant enough that it should be able to drive that market for a number of years,” said Benjamin Hall, vice president, alpha research at Segal Marco Advisors.