European shares close lower as oil surge sparks inflation worries, rate hike bets

EUROPEAN shares extended losses on Thursday as investors grappled with a surge in oil prices, which brought concerns about inflation amid the war in the Middle East to the forefront again.

The pan-European benchmark Stoxx 600 closed 0.6 per cent down at 598.86, and ended lower for the seventh time in nine sessions this month, wiping off about 5.6 per cent since the conflict began.

Crude prices touched US$100 a barrel earlier in the session before paring some gains.

Iran’s new supreme leader vowed to keep the crucial Strait of Hormuz closed and boats appeared to have attacked two fuel tankers in Iraqi waters, as the conflict between Iran and US-Israeli forces looked far from resolved.

Inflation could edge higher in Europe, which is heavily dependent on oil imports, if crude prices remain elevated for an extended period, adding pressure to already tepid regional growth.

“European stocks (are) seen as more vulnerable as Europe is obviously a very energy-hungry economy with a lot of manufacturing companies that depend on where fuel prices are (and) a very big and important component of the cost structure”, said Marija Veitmane, head of equity research at State Street.

Money markets were pricing in a European Central Bank rate hike by July, with an 87 per cent probability of another increase by December, a stark shift in expectations before the conflict started, when they were betting on a rate cut, as per data compiled by LSEG.

The economically sensitive bank sector continued its slide and led broader declines with a 3.5 per cent drop.

“Higher oil prices raise recession risk, that is negative for bank lending. Private credit, corporate loans, consumer credit are very much (exposed) to recession risks right now and that could be weighing,” said Lale Akoner, global market analyst at eToro.

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Europe’s volatility gauge remained elevated and near its April 2025 levels, during US President Donald Trump’s liberation day tariff announcements.

Energy shares gained 1.4 per cent, while utilities were 1.8 per cent higher.

Tempering losses early in the session were some upbeat earnings updates.

Leonardo’s shares gained 5.7 per cent to hit a record high the defence group said it was “positioned on a path of strong growth”, with orders, revenues and core profits set to rise further this year.

Daimler Truck added 4 per cent after guiding for a broadly stable 2026 profit margin in its industrial business.

Zalando jumped 9.5 per cent after the online fashion retailer forecast growth in full-year adjusted operating profit in 2026.

Shares of French inflammatory-disease specialist Abivax climbed 6.7 per cent after new media report on takeover rumours.

TP ICAP gained 10.8 per cent after reporting a 3.6 per cent jump in annual pre-tax profit, while K+S topped the Stoxx 600 with a near 15 per cent jump after the German potash and salt miner reported a better-than-expected core profit for the past financial year. REUTERS