London: European stock markets closed mostly lower on Wednesday, influenced by escalating tensions between the US and Iran, as well as anticipation surrounding the European Central Bank's policy decision. The pan-European Stoxx Europe 600 index slipped 0.08% to close at 618.17 points, marking its fourth consecutive daily decline.
According to Anadolu Agency, Germany's DAX 40 fell 0.97% to 24,195.31 points, while France's CAC 40 lost 0.51% to 8,161.83, and Italy's FTSE MIB 30 declined 0.46% to 50,029.17 points. In contrast, the UK's FTSE 100 rose 0.27% to 10,254.81 points, supported by gains in the energy and consumer staples sectors, as oil prices remained elevated amid Middle East tensions.
Market sentiment weakened following the downing of a US helicopter, which led President Donald Trump to assert the US's right to strike Iran. Trump's declaration of further military action against Iran intensified caution among investors, with energy security concerns becoming a central factor in market pricing. Brent crude traded near $95 per barrel, influenced by disruptions around the Strait of Hormuz, contributing to elevated inflation risks.
Investors are also focused on the European Central Bank meeting scheduled for Thursday. Market expectations suggest a rate hike due to increased energy costs resulting from limited flows through the Strait of Hormuz, potentially exerting upward pressure on inflation. Analysts indicate that the ECB faces a challenging policy environment, as it must balance weak growth signals in parts of Europe against renewed energy-driven price pressures.
Germany, the eurozone's largest economy, remains particularly vulnerable to the energy shock, with ongoing concerns over industrial activity and external demand impacting the DAX index. Furthermore, US consumer inflation data released on Wednesday showed a 0.5% month-on-month and 4.2% year-on-year increase in the Consumer Price Index for May, aligning with market expectations.
Analysts stated that the inflation data reinforced expectations of a continued tight monetary policy by the Federal Reserve, despite the figures not exceeding forecasts. The combination of rising oil prices, persistent geopolitical uncertainty, and expectations of tighter monetary policy resulted in limited risk appetite across European equities.