(Sharecast News) - European equities extended losses on Thursday as oil prices surged and investor sentiment deteriorated after Donald Trump signalled the conflict with Iran would continue, warning Washington would hit the country "extremely hard" over the next two to three weeks.
Axel Rudolph, chief technical analyst at IG, noted "Trump's threat of hard strikes on Iran and its energy infrastructure provokes renewed bout of risk-off sentiment".
The pan-European Stoxx 600 fell 0.28% to 595.99, with Germany's DAX down 0.79% at 23,114.07 and France's CAC 40 slipping 0.24% to 7,962.39.
London's FTSE 100 outperformed, rising 0.69% to 10,436.29, supported by gains in energy stocks as crude prices jumped sharply.
Reflecting the broader tone, Rudolph said: "Markets turned sharply risk-off as oil prices and the US dollar surged, while equities sold off following president Trump's unexpectedly hawkish tone on the Middle East conflict, though US indices managed to claw back most of their intraday losses.
"Instead of signalling de-escalation, Trump warned of intensified military action, including potential strikes on critical infrastructure, forcing investors to reprice for a prolonged disruption to energy supply."
Brent crude futures surged 6.92% on ICE to $108.16 a barrel, while the NYMEX quote for West Texas Intermediate jumped 11.89% to $112.02, as renewed concerns over supply disruption intensified.
Prices were further lifted after Trump reiterated calls for nations reliant on Gulf oil to "take the lead" in breaking Iran's control of the Strait of Hormuz, heightening fears over the stability of a key global shipping route.
Rudolph added that "the dollar gained on safe-haven demand and rising stagflation concerns, while crude rallied strongly on fears that significant volumes of oil could remain offline.
"Whereas Brent rallied by over 5%, it has been thwarted by an over 9% surge in WTI amid expectations of tighter global supply feeding back into US pricing and pushing the benchmark close to its March peak."
Market sentiment had already weakened overnight, with Asian equities turning lower following Trump's 19-minute address, which offered little new clarity on the conflict.
The cautious tone carried into Europe, reversing the previous session's optimism that the war could be nearing an end and prompting a broad risk-off move at the open.
AJ Bell head of financial analysis Danni Hewson said "the Easter weekend might be looming for investors but there's little cheer to be found as markets remain under pressure after Donald Trump's opaque comments on Iran.
"The prospect of further escalation over the weekend has seen many investors rush to take defensive positions."
US labour data holds up
On the macro front, US labour market data pointed to continued resilience.
Initial jobless claims fell by 9,000 to 202,000 in the week ended 29 March, undershooting expectations of 212,000 and remaining close to January's two-year low.
Continuing claims rose by 25,000 to 1.84 million, while the four-week moving average edged down by 2,000 to 207,750.
The insured unemployment rate was unchanged at 1.2% in the week ended 21 March.
Rudolph said: "Equity markets dropped as investors priced in the economic fallout of sustained high energy prices and geopolitical instability, with sentiment deteriorating back to last week's pessimistic outlook.
"Despite this, US labour market data remained resilient, with jobless claims falling to near two-year lows, reinforcing the view that the Federal Reserve has little urgency to cut rates.
"This combination of elevated inflation risks and a still-strong labour market continues to support a 'higher for longer' rate environment, adding further pressure to risk assets."
Separately, Challenger, Gray & Christmas reported that US employers announced 60,620 job cuts in March, up from 48,307 in February but significantly lower than the 275,240 recorded a year earlier.
Planned reductions were led by the technology sector with 18,720 cuts, followed by pharmaceuticals, education and financial services, with artificial intelligence cited as the main driver behind 15,341 layoffs.
First-quarter job cuts totalled 217,362, down 16% from the previous quarter and marking the lowest first-quarter figure since 2022.
Andy Challenger, chief revenue officer at Challenger, Gray & Christmas, said "removing the wave of federal layoffs announced in February and March of last year, job cut announcements in 2026 are closely following the pattern of 2025.
"Last year it was government, retail, and technology. This year, it's technology, transportation, and healthcare."
Energy stocks in the green, low-cost airlines slip
In equity markets, energy stocks were among the strongest performers, with Shell rising 2.95% on reports it was in talks with Venezuela to develop offshore gas projects, while Centrica gained 2.45% as month-ahead Dutch gas prices increased.
Hewson noted "energy stocks on both sides of the Atlantic have risen, and as the impact of the conflict on Brent crude oil remains in focus, West Texas Intermediate (WTI) appears to be experiencing a 'safe supply' premium."
Airlines came under pressure amid concerns over fuel supply.
Ryanair fell 2.04% after chief executive Michael O'Leary warned the UK was particularly exposed to jet fuel shortages as the Iran conflict dragged on, while Wizz Air Holdings declined 2.11% despite reporting an 8.4% rise in March passenger numbers to 5.51 million.
The airline said its load factor edged down to 90% from 90.5%, while rolling 12-month passenger numbers increased 10% to 69.75 million, with the load factor slipping to 90.7% from 91.2%.
Reporting by Josh White for Sharecast.com.
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