European Stocks Stall as Mideast Tensions Offset Dovish Fed Signals

European stock markets were little changed in Thursday trading, as investor caution over escalating military conflict in the Middle East offset optimism from fresh U.S. inflation data that reinforced expectations for a patient Federal Reserve.

Market Snapshot

The pan-European STOXX 600 index was flat in early trade. Major continental bourses including Germany’s DAX, France’s CAC 40, and Italy’s FTSE MIB also traded near the unchanged mark, while London’s FTSE 100 edged down by 0.4%, according to market data.

Market sentiment was dampened by rising geopolitical tensions, with crude oil prices holding near one-month highs following U.S. military strikes in Iran. Reports that Tehran warned of a potential "existential war" prompted investors to adopt a more cautious stance.

However, limiting the downside was cooler-than-expected U.S. economic data. A soft Producer Price Index (PPI) report, combined with recent declines in consumer prices, has led financial markets to scale back bets on further monetary tightening. The probability of a July interest rate hike from the Federal Reserve has fallen to just 10%.

Earnings Season in Focus

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The cautious trading comes as the second-quarter corporate earnings season gets underway in Europe. Investors are looking for signs of corporate health amid high domestic interest rates and geopolitical uncertainty.

While headline profit growth for the STOXX 600 is projected to climb 14.5% year-over-year, analysts noted this figure is heavily skewed by an anticipated 109% surge in energy sector profits. Excluding the oil and gas sector, underlying European corporate earnings growth is forecast at a more modest 5.5%. Investors are closely watching for signs of margin resilience and AI-driven capital expenditure.

Notable Stock Movements

Among individual companies, several significant moves were reported:

• Rotork (ROR.L): Shares in the U.K. industrial firm surged approximately 65% after ABB agreed to acquire the company in a $5.5 billion deal.
• Frasers Group (FRAS.L): The retailer's stock fell 5% after it missed profit estimates in its final results.
• Partners Group (PGHN.S): The Swiss private equity firm declined by 7% following the release of its quarterly results.