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

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 per cent 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 per cent and 1 per cent, respectively.

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

Rising tensions pushed oil prices above the US$100-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 per cent on investor optimism that a temporary US-Iran ceasefire could lead to end of hostilities.

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

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

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

French luxury giant LVMH said it suffered a heavy impact from the Middle Eastern conflict, with sales falling in the Gulf. Shares were marginally lower.

On the monetary policy front, markets are currently pricing in nearly three 25-basis-point rate increases from the European Central Bank by year-end, according to LSEG-compiled data.

Among other movers, Nokia soared 7.2 per cent to its highest in 16 years, aiding tech shares, with traders citing a BofA rating upgrade to buy.

Investor attention will now shift toward earnings season, with US banks kicking-off by reporting quarterly results this week. REUTERS