European Stocks Decline

European stocks closed sharply lower on Wednesday as the ongoing surge in energy price consolidated concerns that inflation could dent demand and drive the ECB to deliver multiple rate hikes this year. The Euro STOXX 50 fell 1.7% to 6,304 and the STOXX Europe 600 fell 1.5% to 640. Strikes between the US and Iran intensified halfway through the week and pushed back expectations of when fuel exports through the Middle East may be somewhat normalized. Brent crude passed $100 per barrel, while regional natural gas benchmarks rose to their highest since 2022. The ECB is due to raise rates by 25bps tomorrow, and potentially give hints on whether it sees more tightening to be warranted. Rate sensitive sector declined sharply, with Santander, ING, Deutsche Bank, and Allianz dropping 2% due to risks on credit demand. Industrials also fell with Schneider Electric, Siemens, Rheinmetall, and Safran falling more than 3%.

Stocks in Europe were lower on Wednesday, with the STOXX 50 falling 0.7% and the STOXX 600 declining 0.5%, as higher oil prices continued to weigh on market sentiment. Brent crude hit $100 a barrel as tensions between the US and Iran escalated. The rise in energy prices could put further pressure on inflation and reinforce the case for additional monetary policy tightening. The ECB is widely expected to deliver a 25bps rate hike tomorrow, with traders set to assess any further guidance on the policy outlook. Inditex tumbled more than 3% despite reporting a better-than-expected start to its autumn trading season, with currency-adjusted sales rising 9% in August. Rheinmetall was also among the worst performers, falling 2.5% and nearly reversing its 3% gain in the previous session. Energy stocks, meanwhile, moved higher, with TotalEnergies gaining 1%, Shell rising 1%, BP adding 1.7%, Galp advancing 1.6%, and Repsol climbing 2.1%.

European equity markets were set for a weaker open on Wednesday as oil prices extended their gains amid escalating Middle East tensions, raising inflation concerns and strengthening expectations for interest rate hikes. In the latest developments, Iran said it had struck two American vessels and eight oil tankers in the Gulf in retaliation for US attacks on five Iranian tankers near Kharg Island. Investors were also preparing for the European Central Bank’s policy decision on Thursday, with the central bank widely expected to deliver a 25-basis-point rate hike. In corporate news, Dutch semiconductor equipment maker ASML secured commitments from major chipmakers to adopt its latest production technology as demand for more advanced AI hardware continues to surge. In premarket trading, Euro Stoxx 50 and Stoxx 600 futures were both down around 0.4%.