(Sharecast News) - European shares closed slightly lower on Wednesday after the US and Iran exchanged missile fire overnight, while investors parsed fresh US inflation data and another sell-off in artificial intelligence-linked stocks.
The pan-European Stoxx 600 slipped 0.002% to 618.63.
Germany's DAX fell 0.88% to 24,218.32, France's CAC 40 declined 0.51% to 8,161.83, and London's FTSE 100 managed gains of 0.27% to 10,254.81.
In commodities, Brent crude futures were last up 3.11% on ICE at $94.29 per barrel, while the NYMEX quote for West Texas Intermediate gained 3.47% to $91.26.
David Morrison, senior market analyst at Trade Nation, said European stock indices were lower across the board as sentiment remained cautious following fresh US military action against Iran.
He said traders were also keeping a close eye on US technology stocks, which had come under renewed selling pressure.
US military officials said strikes had hit Iranian air defence, ground control stations and surveillance radar sites near the Strait of Hormuz.
Iran responded by launching missiles at Jordan, Bahrain and Kuwait, although no damage was reported.
The US strikes were ordered by president Donald Trump, who claimed Iran had shot down an American helicopter patrolling the strait.
Tehran has not claimed responsibility for the incident.
Morrison said the escalation had come "just after it appeared that tensions were being dialled down to some extent, after Iran and Israel agreed to terms over Lebanon".
He said the dollar had drifted lower despite the renewed tensions, while crude oil was also initially softer, suggesting investors were not overly alarmed by the resumption of hostilities.
Kathleen Brooks, research director at XTB, said markets were "directionless" as they moved through Wednesday.
"A flare up in tensions between Iran and the US, with both sides striking each other has not translated into an oil price spike, and the price of Brent crude remains below $92 per barrel," she said.
"There is a lack of anxiety in the oil market right now, even though a peace deal is unlikely in the current scenario."
Brooks said the oil market was trading on hopes that a resolution could still be found, as well as signs of looser supply from the Middle East despite the continued blockade of most tankers through the Strait of Hormuz.
"This supply boost explains why the oil price is not surging on the latest outbreak of fighting in the Gulf, and how the oil industry can operate when there is no peace deal," she said.
Morrison said Brent had bounced after reports that a US Apache helicopter had been shot down near the Strait of Hormuz, with the news triggering tit-for-tat strikes between the US and Iran.
However, he said prices later drifted lower as traders judged the military action on both sides to be measured and proportionate.
"There have been fears that President Trump is so keen to end this war that he may call an all-out attack on Iran's oil facilities and other major infrastructure," Morrison said.
"So, the limited nature of recent 'skirmishes' was taken as a positive step, which should keep the communications channels open, paving the way for further peace negotiations."
US consumer inflation 'not as bad as it could have been'
On the economic front, US inflation accelerated in May, with the Bureau of Labor Statistics reporting that headline consumer prices rose 0.5% on the month and 4.2% year-on-year.
The monthly increase was slightly below April's 0.6% rise, but the annual rate picked up from 3.8% and moved above 4% for the first time since May 2023, in line with consensus expectations.
Energy remained the main driver, rising 3.9% on the month and accounting for more than 60% of the overall increase.
Shelter costs rose 0.3%, while food prices edged up 0.2%. Core CPI, which excludes food and energy, increased 0.2% on the month and 2.9% year-on-year, up from 2.8% in April.
Energy prices were 23.5% higher than a year earlier.
Neil Wilson, UK investor strategist at Saxo, said US CPI was "not as bad as it could have been", with the core reading slightly lighter than expected.
He said the market was treating the release as a positive, with bond yields ticking down and stock futures paring losses.
"This could re-anchor expectations a touch for a bit but I still think that the Fed is swinging more quickly behind a hike than it might have done or markets might think," Wilson said.
"Time is growing short and even if it could have been a hotter read headline CPI above 4% against a really strong labour market clearly deserves attention from the Fed."
AI-linked names in the red
In equity markets, European names linked to the artificial intelligence theme weakened, with Raspberry Pi lower in London and German software group SAP also in the red.
Brooks said there had been another sell-off in technology stocks on Tuesday, with Marvell and Strategy both falling 8%, while Qualcomm, Arm and Apple were also among the large decliners.
"This suggests that the shake out in AI stocks is not over yet," she said.
Elsewhere, Pennon Group fell after results, while Norwegian technology and defence group Kongsberg declined after announcing revenue targets for 2029 and 2033.
Reporting by Josh White for Sharecast.com.
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