European Stocks Extend Pullback

European stocks closed sharply lower on Tuesday, erasing early gains amid increasing doubts that the US and Iran may be able to strike an agreement that would restore energy exports from the Persian Gulf. The Eurozone's STOXX 50 fell by 0.7% to 5,939 and the pan-European STOXX 600 lost 0.8% to 616. US President Trump signaled optimism that talks with Iran would happen shortly after stating the ceasefire that ends tomorrow will not be extended, but hawkish remarks from both sides dimmed hopes of further de-escalation. Oil and natural gas prices in Europe rose further, hitting the outlook for margins in industrial giants with Safran, Rheinmetall, and Airbus sinking between 7% and 3%. In the meantime, yields rebounded and pressured banks, with UniCredit, Santander, and BBVA losing close to 2% each. L'Oreal fell 1.5% ahead of its earnings tomorrow.

European stocks edged modestly higher on Tuesday, with both the STOXX 50 and STOXX 600 gaining 0.2%, as developments in the Middle East continue to dominate headlines and traders look for fresh catalysts. Reports show that Iran will join the US for talks in Islamabad. Markets are also closely watching whether the ceasefire which is set to expire Wednesday evening (Washington time), will be extended, and whether the Strait of Hormuz will be reopened. ASML Holding (1.2%), SAP (1.3%) and Allianz (1.4%) were booking gains while AstraZeneca (-1.2%), UBS (-2%) and Safran (-1%) traded lower. In addition, traders keep an eye on the earnings season, with Thales losing 1% as its results failed to impress investors. Royal Unibrew tumbled more than 17% to bottom the STOXX 600 as the company's partnership with Pepsi traders in northern Europe was set to end. Associated British Foods was also down 5% as the company reported a drop in first-half operating profit and said it will separate Primark.

European equity markets were poised to open higher on Tuesday, supported by optimism over a potential deal to end the conflict between the US and Iran and reopen the Strait of Hormuz. Both sides are expected to send delegations to Islamabad for a second round of talks before the current ceasefire expires this week. However, President Donald Trump said he is unlikely to extend the truce and that the Strait of Hormuz will remain blocked until a deal is finalized. In Europe, investors will look to UK labor market data and Germany’s ZEW economic survey for fresh economic signals. On the corporate front, earnings are due from Thales, Associated British Foods, and Beiersdorf, among others. In premarket trading, Euro Stoxx 50 and Stoxx 600 futures were both up about 0.4%.