European shares log weekly losses on Iran war-linked inflation woesdrop

Synopsis

European markets experienced a significant downturn, with the STOXX 600 index sliding due to escalating energy inflation fears stemming from the U.S.-Iran tensions. Rising costs are impacting consumer and producer prices, prompting expectations of interest rate hikes. Economically sensitive sectors and defence stocks bore the brunt of the sell-off, despite some positive corporate news.

Europe's STOXX 600slid and logged weekly losses on Friday as concerns over energy-induced inflation pressures due to the U.S.-Iran standoff rattled global markets.

The pan-European benchmark closed down 1.5% at 606.92 points, snapping two straight days of gains. Germany's DAX declined the most among regional bourses, down 2.1% on ‌Friday.

Positive corporate earnings ⁠and ⁠a rally in semiconductor shares aided gains this week, but were overshadowed by cost-of-living worries as energy prices stay elevated.

Europe's materials index led declines, dropping 5.1% tracking weaker metal prices, while the defence sector fell 3.6%, the worst weekly performance among individual sectors.

Semiconductor firms paused their recent rally, with ASML , and Aixtron down 4.4% and 6%, respectively.

U.S. President Donald Trump finished his two-day meeting with China's President Xi Jinping, which yielded little headway with regard to reopening the Strait of Hormuz. Trump ⁠also said his patience ‌with Iran was running out.

"Energy prices are pretty much the biggest problem facing Europe and ultimately, there doesn't appear to be any political will to address that ⁠and markets are pricing that," said Michael Hewson, senior market analyst at iForex.

Inflation data out of several European countries and the U.S. this week showed that the jump in energy costs have started reflecting in consumer and producer prices, prompting investors to price in at least two rate hikes by the end of the year by the European Central Bank. Reflecting this, bond markets also witnessed a selloff.

"Markets which are more reliant on foreign energy imports and manufacturing heavy, which is energy intensive, feel the pain a ‌bit more," said Daniel von Ahlen, senior macro strategist at GlobalData TS Lombard.

Economically sensitive cyclical sectors also came under pressure, with banks dropping 6% as BNP Paribas and Deutsche Bank lost 3% and 2.6%, respectively.

Meanwhile ⁠political uncertainty was rife in the UK as Prime Minister Keir Starmer struggled to hold on to power after his main rival signalled a challenge to his leadership. The blue-chip FTSE 100 ended down 1.7%, while the more domestically-focused mid-cap index lost 1%.

Among others, LVMH dipped 1.1% after the conglomerate agreed to sell fashion brand Marc Jacobs.

Stellantis fell 4.2% after the carmaker signed a roughly 1-billion-euro ($1.16 billion) deal with China's Dongfeng to produce Peugeot- and Jeep-branded vehicles.

Bucking the trend, Technoprobe soared 32.3% after the Italian semiconductor firmupgraded its 2026 outlook.

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