European shares stall in cautious trade as markets weigh geopolitical conflict

European shares stall in cautious trade as markets weigh geopolitical conflict

Asian shares fall on chipmaker drag, bonds cheer cooler inflation Investing.com - European shares were flat on Thursday, as cooling U.S. inflation data reinforced expectations of a patient Federal Reserve, helping to balance investor anxieties over escalating military tensions between Washington and Tehran that have pinned oil prices at one-month highs. The pan-European STOXX 600 index was unchanged in early trade, bucking a tech slump in Asia. Germany’s DAX, France’s CAC 40 and Italy’s FTSE MIB were also flat, while London’s FTSE 100 was down 0.4%.

Market sentiment remains highly sensitive to geopolitical developments. Crude oil prices held near one-month highs following continued U.S. military strikes in Iran. In response, Tehran warned of a potential "existential war" with America, prompting investors to tread carefully despite a more favorable macroeconomic backdrop.

Limiting the downside, however, was a fresh batch of cooler U.S. economic data. The latest Producer Price Index (PPI) came in softer than expected overnight. Coupled with recent declines in consumer prices (CPI) and a visibly cooling labor market, investors are increasingly betting that the Federal Reserve will safely stay on hold.

Financial markets have scaled back their hawkish expectations, with the probability of a Federal Reserve interest rate hike as early as July dropping to just 10%. Attention now pivots to semiconductor bellwether TSMC, which is scheduled to report its quarterly earnings later today. Investors are looking to the Taiwanese manufacturing giant to gauge the long-term durability of the broader global tech and AI infrastructure rally.

The cautious tone across European trading floors comes just as the second-quarter corporate earnings season kicks into gear. While headline earnings for the STOXX 600 are projected to climb roughly 14.5% year-on-year - marking Europe’s strongest corporate profit expansion in over three years - analysts warn the growth is heavily skewed by a massive 109% surge in energy sector profits triggered by Middle East geopolitical supply shocks. Excluding oil and gas, underlying European corporate growth is tracking at a far more modest 5.5%.

With high domestic interest rates weighing on consumer discretionary spaces like the automotive sector, investors are parsing early corporate guidance. Equity markets will be highly sensitive to whether companies can demonstrate robust margin resilience and clear evidence of AI-driven capital expenditure - a metric where Europe still heavily risks lagging behind its tech-heavy Wall Street counterparts. Among individual stocks, Rotork jumped 65% after ABB agrees to buy the firm in $5.5 billion deal.

Partners Group fell 7% after its quaterly results. Frasers fell 5% following its final results and missing profit estimates.