(Sharecast News) - European equities retreated from early gains on Wednesday after the Stoxx 600 touched another intra-day record high in morning trade, as geopolitical risks and central bank commentary tempered sentiment.
The pan-European Stoxx 600 closed up 0.17%% at 611.48, while Germany's DAX slipped 0.14% to 25,314.87.
France's CAC 40 edged 0.06% higher to 8,342.10 and the UK's FTSE 100 outperformed, rising 0.46% to 10,184.35.
As Dan Coatsworth, investment analyst at AJ Bell, noted, "the FTSE 100 is going from strength to strength, hitting yet another new record high," having touched 10,171 earlier in the session, supported by a broad spread of sectors.
Investors continued to monitor geopolitical developments, with US president Donald Trump warning of "very strong action" if Iran's Islamic rulers executed any anti-regime protesters arrested during the recent crackdown.
Separately, attention was on planned talks between US secretary of state Marco Rubio and Greenlandic and Danish officials, following Trump's repeated threats to annex the semi-autonomous Danish territory.
Patrick Munnelly, market strategy partner at TickMill, said heightened geopolitical tensions were also driving demand for alternative assets, with "metals emerg[ing] as the standout performers" and silver surging "beyond $90 per ounce for the first time in history," while spot gold reached a new record high.
ECB vice president warns of underpricing downside risks
In economic news, the vice president of the European Central Bank cautioned that markets were underpricing downside risks from heightened geopolitical tensions.
Speaking in Madrid, Luis de Guindos said the current environment of "profound transformation and heightened uncertainty" was likely to persist, weighing on growth through delayed business investment and weaker consumption, while disrupted trade patterns could further complicate inflation dynamics.
He warned that stretched valuations, liquidity and leverage vulnerabilities in non-banks, and opaque private markets meant financial stability risks remained elevated, adding that negative surprises - from renewed trade tensions to doubts over US fiscal credibility - could trigger abrupt shifts in sentiment.
The eurozone, he said, was particularly exposed to external shocks arising from geopolitical and trade developments.
In the UK, a senior Bank of England policymaker reinforced expectations of further rate cuts.
Alan Taylor, an external member of the Monetary Policy Committee, said inflation was now likely to return sustainably to the 2% target by mid-2026, earlier than previously forecast, with headline inflation currently at 3.2%.
He argued that easing domestic price pressures, stabilising energy costs and global trade diversion - particularly cheaper Chinese imports redirected from the US to the UK and EU - supported a continued reduction in borrowing costs "sooner rather than later".
Taylor was among five MPC members who voted in December to cut Bank Rate to 3.75% from 4%, and said markets were pricing in at least one further quarter-point cut this year, though the pace would depend on labour market developments.
Munnelly said recent US inflation data had also reinforced expectations that the Federal Reserve could pause further easing, noting that December's core CPI reading "continues last month's improvement, with core inflation slowing to 2.6% year-on-year," challenging what he described as "cautious rate cut pricing".
Global data also influenced sentiment. In the US, producer prices rose 0.2% month-on-month in November, lifting the PPI to 150.71 and 3% year-on-year, while core PPI increased 0.2% on the month and 3.5% annually.
US mortgage applications surged 28.5% in the week to 9 January, led by a 40% jump in refinancing and a 16.9% rise in purchase applications, as 30-year mortgage rates fell to a 15-month low of 6.18%.
In China, the trade surplus reached a record $1.189trn in 2025, with exports up 5.5% to $3.77trn as shipments to the EU and Southeast Asia offset a 20% drop to the US.
December data showed the surplus at a seven-month high of $114.1bn, with exports rising 6.6% year-on-year, well above expectations, and imports up 5.7%.
Orion jumps, Fresnillo gives up gains
In equities, shares in Finnish drugmaker Orion jumped after it said sales of its Nubeqa prostate cancer treatment could exceed $1bn.
BP reversed earlier losses to finish higher after announcing it would book up to $5bn of impairments in the fourth quarter, with oil and gas production expected to be flat.
Coatsworth said the write-downs "reaffirm" the logic behind BP's shift away from its green energy push, adding that they illustrate "the scale of the challenge in front of" incoming chief executive Meg O'Neill, even as the company makes progress in trimming its debt pile.
Energy firms RWE and SSE both advanced after securing guaranteed electricity price contracts in the UK's latest offshore wind auction, with Coatsworth highlighting SSE's 20-year contract for 1.4 gigawatts as a key driver of gains.
Fresnillo, the world's largest silver producer, touched a record high shortly after the open but closed lower, despite spot silver rising above $90 an ounce for the first time.
Reporting by Josh White for Sharecast.com.
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