European shares drop after sharp rebound
The pan-European STOXX 600 ended 1.3% lower, reversing an earlier gain of 0.6%
European shares dropped on Thursday after a sharp rebound in the previous session, as the Middle East war showed no signs of easing and more tankers came under attack, threatening higher oil prices and a knock-on effect on the global economy.
The pan-European STOXX 600 ended 1.3% lower, reversing an earlier gain of 0.6%. The index recorded its strongest session in more than three months on Wednesday.
Export-heavy industrial stocks were the biggest drag on the index, down 2.4%. Siemens Energy dropped nearly 6%, while defence stocks Rolls-Royce and Rheinmetall declined more than 5% each.
The broader aerospace and defence index was down 4.2%, in its sharpest one-day decline since April.
It’s becoming harder to see a quick resolution to the conflict in the Middle East and that in turn is forcing markets to look again at their interest rate expectations for the coming months, said Danni Hewson, head of financial analysis at AJ Bell.
Banks were down 1.7%, travel and leisure stocks dropped 1.8% and miners declined 3.8% as metal prices eased.
It’s better to take a step back. If we don’t have a clear and abrupt end to the conflict right now, we will continue to see this volatility extend into the next weeks, said Ipek Ozkardeskaya, senior analyst at Swissquote Bank.
Europe remains heavily reliant on imported oil and LNG, and tighter supply conditions due to the war could push energy and transport costs higher, at a time when growth is already tepid.
Three European Central Bank policymakers warned that euro zone inflation would likely increase, and growth sag, if the war sucks in more countries.
Morgan Stanley projected the ECB will hold rates steady through 2026, pointing to the inflation risks stemming from the conflict.