European shares dip as Middle Eastern developments keep investors wary

[BENGALURU] European shares closed lower on Thursday (May 28), though they pared steeper losses after a report on news outlet Axios said that the United States and Iran had agreed to extend a ceasefire and begin negotiations.

The pan-European Stoxx 600 fell 0.4 per cent to 625.39 as major regional bourses also closed lower.

The reported deal, which would still require approval from US President Donald Trump, helped to calm markets after Iran targeted a US air base in Kuwait and Washington struck what it described as an Iranian drone complex near the Strait of Hormuz.

Crude prices, a concern for energy-dependent Europe, surged earlier in the day before trimming gains. Brent crude futures were last up 0.3 per cent at US$94.68 a barrel.

“A lot of the good news around this has been priced in over the early part of the week,” said Kiran Ganesh, multi-asset strategist at UBS Global Wealth Management. “The relatively muted reaction we have seen in markets to signs of a ceasefire reflects that.”

Market analysts say better-than-expected corporate earnings have also supported equities since March’s conflict-driven lows, though risks remain.

“If you look at what companies did with their earnings, there were no real changes in guidance. The big uncertainty is how the consumer reacts to higher energy prices in the second half of the year,” said James Rutland, a fund manager at Invesco.

Next month’s European Central Bank policy meeting will be the next big catalyst for the market. Rising energy prices and geopolitical uncertainty have clouded the central bank’s rate outlook, with traders pricing in about 90 per cent chances of a 25- basis-point rate hike.

Among Thursday’s movers, financials led the losses. The banking and insurance sectors were down 1 per cent and 1.9 per cent, respectively. French semiconductor materials supplier Soitec shot up 24.6 per cent after reporting annual sales above market expectations. Peers, including Infineon and STMicroelectronics, added 4.4 per cent and 3.2 per cent, respectively.

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European shares drop as escalating US-Iran tensions weigh on sentiment

Global uncertainty sparked by the US’ shift in trade and security policy is pushing Europe to reduce its reliance on its longtime partner. Defence stocks Renk, up 5.4 per cent, Rheinmetall, up 4.1 per cent, and Saab, up 7.4 per cent, rose as Canada and Norway sought deals with European companies. Satellite companies such as Eutelsat rose 5.8 per cent and OHB added 4.2 per cent.

Europe announced plans to allocate the bulk of valuable mobile satellite spectrum to European companies while reducing the share US operators can acquire. Among the fallers, BT lost 3.4 per cent after a media report said that the British government will oppose any attempt from Indian billionaire Sunil Bharti Mittal to increase his stake in the telecoms group, citing the need to maintain sovereign control over “critical national infrastructure”. REUTERS