European shares moved lower on Tuesday as rising military tensions in the Middle East and a newly announced US shipping blockade pushed crude oil prices sharply higher.
Investor sentiment also weakened ahead of important US inflation data and testimony from senior Federal Reserve officials.
The pan-European STOXX 600 index declined by around 0.6% in early trading. However, energy and defence stocks recorded modest gains as oil prices and geopolitical risks increased.
Major European Indexes Trade Lower
Germany’s DAX fell approximately 0.3%, while France’s CAC 40 declined by 0.6%.
The UK’s FTSE 100 slipped around 0.1%, and Italy’s FTSE MIB lost roughly 0.3%.
The broad decline reflected growing concern that higher energy prices could keep inflation elevated and increase pressure on central banks to maintain restrictive monetary policies.
Airline Stocks Hit by Rising Fuel Costs
Airline shares were among the weakest performers during the session.
Air France-KLM dropped around 3% as investors assessed the impact of higher fuel prices on operating costs and profit margins.
Fuel represents one of the largest expenses for airlines. Therefore, a sustained increase in oil prices could place further pressure on the sector.
Trump Restores Iran Shipping Blockade
Market sentiment turned more defensive after US President Donald Trump announced the restoration of a naval blockade targeting Iranian shipping in the Gulf.
The US administration also said it would impose a 20% charge on commercial cargo passing through the Strait of Hormuz.
The announcement raised fears of further disruption to one of the world’s most important energy shipping routes.
Oil Prices Reach One-Month High
The latest escalation followed a third consecutive night of military strikes in the region.
Brent crude futures rose by more than 2% to trade near $85 per barrel, their highest level in around one month.
The advance followed a 9.6% surge in the previous session.
Higher oil prices strengthened concerns that transportation, manufacturing and consumer costs could rise across the global economy.
Federal Reserve Comments Fuel Rate Concerns
Federal Reserve Governor Christopher Waller added to market uncertainty by warning that interest rates may need to rise in the near term.
Waller said tighter policy could become necessary if incoming economic data showed inflation remaining significantly above the Federal Reserve’s 2% target.
His comments increased investor concern that the central bank may delay monetary easing or consider additional rate increases.
US CPI Data Takes Centre Stage
Markets are now focused on the latest US Consumer Price Index report, due later on Tuesday.
The data will provide fresh insight into underlying inflation pressures and could influence expectations for future Federal Reserve decisions.
A stronger-than-expected reading could increase the likelihood of tighter monetary policy. In contrast, softer inflation data may ease some of the pressure on global markets.
Warsh Testimony Also in Focus
Newly appointed Federal Reserve Chair Kevin Warsh is expected to begin two days of testimony before Congress.
Investors will closely examine his comments for guidance on inflation, interest rates and the broader US economic outlook.
His testimony could have a significant effect on bond yields, the US dollar and global equity markets.
European Earnings Season Adds Volatility
European investors are also preparing for increased market volatility as the second-quarter earnings season gathers momentum.
Attention is turning to Wall Street, where several major US banks are scheduled to release financial results later in the day.
Their earnings will be closely watched as an indicator of how large companies are performing under elevated interest rates and uncertain economic conditions.
Hapag-Lloyd Rises After Outlook Update
Among individual European stocks, Hapag-Lloyd gained nearly 6% after releasing an updated annual outlook.
The shipping company benefited from investor optimism surrounding its financial expectations.
Shipping stocks may also receive support from higher freight costs if disruptions in the Strait of Hormuz continue.
Evotec Plunges After Earnings Report
Evotec shares fell around 30% following the release of its earnings results and updated outlook.
The sharp decline suggested that investors were disappointed by the company’s financial performance or future guidance.
The move made Evotec one of the weakest-performing stocks in European trading.
Oil and Inflation Risks Dominate European Markets
European stocks remained under pressure as investors balanced geopolitical risks, rising energy prices and uncertainty over global interest rates.
Further disruption in the Strait of Hormuz could push oil prices even higher and add to inflationary pressures.
The US CPI report, Federal Reserve testimony and upcoming corporate earnings are likely to determine the next major direction for European markets.
