European shares close lower as investors weigh Middle East risks

[BENGALURU] European shares surrendered early gains on Tuesday (Jun 9) to close lower for a third straight session, led by declines in commodity-linked stocks as investors weighed a fragile Iran-Israel ceasefire.

The pan-European index Stoxx 600 edged down 0.5 per cent to 618.64 points, with miners and energy stocks leading losses, down 2.5 per cent and 2.4 per cent, respectively.

Sentiment around the Middle East conflict remained cautious. US Energy Secretary Chris Wright said ship traffic through the Strait of Hormuz, a key global energy route, was rising “very meaningfully”.

Hopes for a durable easing in tensions were tempered after Israel struck the historic port city of Tyre in southern Lebanon on Tuesday, killing at least eight people. Teheran had warned on Monday that it would resume hostilities if Israel continued attacks on its ally Hizbollah in Lebanon.

“The markets have been moving in a holding pattern for the last week or two, with what’s happening in the Middle East and smaller impact from some of the AI-driven volatility that we are seeing in Asian and US markets,” said Craig Cameron, portfolio manager at Franklin Templeton.

Lenders jostle for market share

European technology stocks, which have seen bouts of volatility recently, showed signs of steadying earlier in the session but ended 1.3 per cent lower, tracking Wall Street peers.

Even so, the sector remains set for the strongest quarterly gain on the Stoxx 600.

In corporate moves, Italy’s financial sector stayed in focus after Monte dei Paschi di Siena received rival buyout proposals from Intesa Sanpaolo and Banco BPM, as lenders jostle for market share in the eurozone banking sector.

Intesa also unveiled a separate plan to sell 635 MPS branches and the brand to insurer Unipol, a move aimed at easing competition concerns.

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European shares steady; Middle East tensions in focus

MPS gained 2.6 per cent, while Banco BPM and Intesa rose about 1 per cent each. BPER Banca and Unipol advanced 4.7 per cent and 2.9 per cent, respectively.

ECB action

The European Central Bank (ECB) is widely expected to raise interest rates by 25 basis points on Thursday as inflation worries persist, though investors will be watching closely for guidance on how much further policymakers may go.

“It looks likely that the ECB will act, but it certainly will not want to over-egg the pudding. It will not want to make policy decisions that are too tight and risk dampening growth further,” said Susannah Streeter, chief investment strategist at Wealth Club. “The outlook is probably going to be one of ‘let’s wait and see now’.”

Among other sectors, telecoms fell 2 per cent, with Ericsson and Nokia among the Stoxx 600’s biggest decliners after traders cited a report warning of potential risks from Nvidia developing technology for future mobile networks.

Defence stocks dropped 0.7 per cent after Morgan Stanley downgraded European defence shares to equal-weight for the first time in more than two years, citing downward earnings revisions. REUTERS