Europe close: Shares fall as US inflation eases but rate hike risks linger

(Sharecast News) - European shares closed lower on Wednesday as traders assessed an easing in US inflation and an attack on a cargo ship in the Red Sea by Iran-backed Houthi rebels that killed six people.

The pan-regional Stoxx 600 index finished down 0.18% to 659 with all major bourses lower.

US inflation eased in July, with the headline consumer price index slipping to 3.4% yearonyear, down from 3.5% in June, as petrol prices fell, even as the economic impact of the conflict in Iran continued to filter through.

The softer headline figure was driven by another decline in energy costs as, despite pump prices surging later in the month amid heightened tensions with Iran, petrol was still 2.9% lower on average than in June. Heating oil and other energy components also contributed to the overall moderation.

The Bureau of Labor Statistics also revealed that core CPI, which strips out volatile food and energy costs, edged down to 2.5% in July, down from 2.6% a month earlier.

July's CPI reading comes as the Federal Reserve faces renewed pressure to further tighten monetary policy, with inflation still elevated following months of disruption to energy supplies, tariffrelated price pressures and strong demand linked to the AI boom.

Meanwhile in the Red Sea a cargo ship was attacked in the Bab elMandeb Strait on Tuesday, the first reported fatalities from attacks in the region in more than a year.

Yemen's transport ministry said the dead included four crew members on the Egyptianowned, Tanzaniaflagged Tihamah - three Pakistani nationals and one Indonesian - along with two members of the Yemeni governmentallied National Resistance Forces who were hit in a followup strike during a rescue attempt.

Hours later, US forces said they fired missiles at a container ship that allegedly attempted to breach Washington's blockade of Iranian ports in the Gulf of Oman.

Adding to the negative sentiment, Iran's top security official, Mohsen Rezaei, said the vital Strait of Hormuz would remain closed unless the US accepted Tehran's conditions to end the war, including the release of frozen assets, compensation and an end to other regional conflicts.

Oil prices hovered just below $90 a barrel - their highest level in a month - underlining concerns that US President Donald Trump may be realising the hard way that international diplomacy is not a Manhattan property deal and has painted himself into a corner with the Iranians in no hurry to strike a peace agreement.

In equity news, shares in Vestas Wind Systems surged as the company reported better than expected second quarter revenues.

UK infrastructure group Balfour Beatty also jumped as it said annual earnings would be above estimates.

TKMS `soared as the warship maker raised its outlook for the second time in six months.

TUI fell after third-quarter operating profit at Europe's largest travel `company missed expectations as the Iran war hit bookings and hiked jet fuel costs.

Reporting by Frank Prenesti for Sharecast.com