Europe close: Stocks stumble as oil prices climb again

(Sharecast News) - European equities fell on Thursday as a fragile ceasefire between the US and Iran showed signs of unravelling, halting the previous session's rally and pushing oil prices higher.

The pan-European Stoxx 600 declined 0.39% to 611.12, with Germany's DAX down 1.35% at 23,754.58 and France's CAC 40 slipping 0.51% to 8,221.90.

London's FTSE 100 edged 0.05% lower to 10,603.48.

Brent crude futures were last up 2.37% on ICE at $97.00 per barrel, while the NYMEX quote for West Texas Intermediate jumped 5.62% to $99.72.

"Another day of increasingly exasperated diplomatic exchanges over the exact scope of the ceasefire has resulted in a recovery for oil prices," said Chris Beauchamp, chief market analyst at IG.

"Both Brent and WTI are back to where they were a week ago.

"This reflects markets catching up with the reality on the ground, where Hormuz is closed, damage has still been done, and the full impact has yet to register.

"Oil's move back below $100 seems fated to be reversed, which puts equity markets at risk of fresh falls."

Sentiment deteriorated after Iran accused the US of breaching the ceasefire agreement, citing Israel's continued military operations in Lebanon.

Israeli prime minister Benjamin Netanyahu reportedly exempted Israel from the deal and ordered further strikes on Beirut, while Tehran reiterated its insistence on retaining uranium enrichment rights, a key sticking point for Washington.

Tensions were further compounded by reports that Iran's Revolutionary Guard had effectively imposed a toll system at the northern end of the Strait of Hormuz.

US president Donald Trump warned that American forces would remain in the Gulf until Tehran complied fully with the "real agreement," adding in a social media post that if it did not, "the 'Shootin' Starts,' bigger, and better, and stronger than anyone has ever seen before."

Beauchamp added that "a collapse of negotiations would reignite fears that the much-feared second wave of inflation was finally beginning to build."

German industrial output falls even before Iran war

On the economic front, German industrial production unexpectedly fell 0.3% month-on-month in February, missing expectations for a 0.9% increase and highlighting underlying weakness in Europe's largest economy even before the escalation in Middle East tensions.

Output was dragged lower by a 1.2% decline in construction and sharp contractions in electronics and pharmaceuticals, down 3.9% and 4.4% respectively, while annual production was flat.

In contrast, exports rebounded strongly, rising 3.6% on the month, with imports up 4.7%, narrowing the trade surplus to �19.8bn.

"All-in-all, February's macro data shows that even without the war in the Middle East, the German economy was unfortunately on track for yet another quarter of contraction," said Carsten Brzeski, global head of macro at ING, adding that the conflict would "leave clear marks on the German economy over the next few months."

In the UK, the housing market weakened sharply in March as geopolitical uncertainty and rising borrowing costs weighed on activity.

The Royal Institution of Chartered Surveyors said its new buyer enquiries balance fell to -39, the lowest since August 2023, while agreed sales dropped to -34 from -13.

The house price balance also declined to -23.

Short-term sales expectations deteriorated significantly to -33 from -4, reflecting a sharp shift in sentiment after the Bank of England opted to hold rates steady amid rising energy prices, with markets now pricing in increases later this year.

"Investors are now pricing in 40 basis points of Bank of England rate hikes by the end of the year, compared with 32 basis points expected just one day earlier," noted Patrick Munnelly, market strategy partner at TickMill.

He added that "uncertainty linked to the Iran conflict has made prospective buyers more cautious about the risk of higher mortgage rates."

Across the Atlantic, US inflation data showed price pressures remained elevated, likely limiting scope for near-term rate cuts. The personal consumption expenditures price index rose 0.4% month-on-month in February, with annual growth steady at 2.8%.

Core PCE, excluding food and energy, increased 0.4% for a third consecutive month and eased slightly to 3% year-on-year.

Consumer spending rose 0.5%, suggesting resilience in demand despite higher prices.

Energy stocks rise, travel plays in the red

In equity markets, energy stocks outperformed as crude prices climbed, with Var Energi up 3.15%, BP gaining 3.06%, TotalEnergies rising 2.24% and Shell adding 1.65%.

Patrick Munnelly noted that "the FTSE 350 energy index rose 1% as oil prices jumped nearly 3% amid fears that key energy shipments through the Strait of Hormuz could remain disrupted."

In contrast, travel and leisure stocks came under pressure amid concerns the conflict could escalate again.

Deutsche Lufthansa fell 3.18%, easyJet dropped 3.26% and Ryanair Holdings declined 3.62%, while Wizz Air lost 2.73%.

TUI, British Airways owner IAG and Air France-KLM also traded lower as investors rotated away from cyclicals exposed to fuel costs and geopolitical risk.

Reporting by Josh White for Sharecast.com.