European Midday Briefing: Stocks Fall, Oil Rises on U.S-Iran Hostilities

European stock indexes mostly fell Wednesday after U.S. and Iranian forces exchanged heavy fire, raising tensions in the Middle East. The U.S. Central Command confirmed a fragile ceasefire remained in place despite the most intense clashes in months. Brent crude oil climbed above $98, lifting energy and utilities stocks on the Stoxx 600, though overall market sentiment weakened due to fears of prolonged conflict blocking the Strait of Hormuz. The IBEX 35 was the only major European index in positive territory, supported by Inditex’s report of accelerating sales. Analysts at Saxo Bank noted growing pessimism over a potential U.S.-Iran deal, which could ease regional tensions. Meanwhile, a U.S. proposal to impose tariffs on major trading partners, including Europe, further dampened investor confidence. The OECD warned the global economy would slow this year due to higher energy costs, reducing consumer spending and business investment. Rio Tinto’s stock, which had risen nearly 8% since the conflict escalated, faced a downgrade from RBC Capital Markets, citing limited further growth catalysts. In the U.S., stock futures pointed to another strong session for major indexes, extending the S&P 500’s ninth consecutive daily gain, fueled by AI optimism. Investors awaited private payrolls and services ISM data ahead of Friday’s jobs report. The dollar strengthened against major currencies, supported by rising U.S. job openings and hawkish comments from Cleveland Fed President Beth Hammack, who suggested further rate hikes may be needed to combat inflation. Eurozone government bond yields rose alongside U.S. Treasury yields, as Middle East tensions and higher oil prices kept inflation concerns elevated. Standard Chartered attributed Treasury yield movements primarily to oil prices, signaling near-term market focus on inflation rather than growth.