The unresolved U.S.-Iran standoff and the resulting rebound in international oil prices have intensified inflationary pressure across the eurozone, with European equities extending their slide on the 20th as the pan-European STOXX 600 index closed lower for a seventh consecutive session — the longest losing streak since September 2023.
The STOXX 600 edged down 0.12% to close at 650.35 points. Sector performance was mixed, with energy stocks gaining 0.9% as oil prices climbed, while travel and leisure shares fell 0.7% on fuel-cost concerns. Major European indices were split: Germany’s DAX index dropped 0.42% to 25,983.04 points, underperforming the region; France’s CAC 40 fell 0.57% to 8,453.09 points; while the UK’s FTSE 100 inched up 0.04% to 10,748.16 points.
With U.S.-Iran negotiations at an impasse, market expectations for a resumption of safe passage through the Strait of Hormuz have cooled. Brent crude futures climbed roughly 2% to trade near $93 per barrel, reigniting inflation concerns. Meanwhile, after the U.S. Treasury announced expanded support for longer-dated government bonds, eurozone sovereign bond yields pulled back slightly from four-year highs but remained elevated, continuing to weigh on equity markets.
Swissquote senior analyst Ipek Ozkardeskaya noted that the U.S. Treasury’s move caught the market off guard and could support European bonds over the longer term, but market focus is likely to return to near-term risk factors once the initial reaction fades. She emphasized that the decline in energy prices in July has already proven to be temporary, and with the Middle East situation unlikely to be resolved in the short term, inflation risks remain tilted to the upside.
On the economic data front, Germany’s July producer price index rose 3.0% year-over-year, exceeding the market consensus of 2.7% and marking the largest increase since March 2023. The month-over-month gain reached 1.1%, driven primarily by higher intermediate goods and energy costs. The data further confirms that the eurozone’s largest economy continues to face stubborn price pressures.
On the policy front, Sweden’s Riksbank held its benchmark interest rate unchanged at 1.75% as expected, and explicitly stated that it stands ready to tighten monetary policy should price pressures accelerate. Swedish equities edged up 0.3% following the decision.
Among individual stocks, UK sportswear retailer JD Sports plunged 14.3%, the steepest decline among STOXX 600 constituents. The company’s second-quarter revenue fell far short of market expectations, and it lowered its profit outlook, with the North American market proving particularly weak.
By contrast, Danish biotech company Novonesis surged 9.7% after second-quarter results beat expectations. The company also raised its full-year guidance and announced a share buyback program, making it the standout performer of the session.
Looking back at the previous trading day, the STOXX 600 had already fallen 0.11% to 651.16 points on the 19th, retreating to a three-week low. Sovereign bond yields across major global economies have recently touched multi-year highs, keeping equities under sustained pressure. City Index senior market analyst Fiona Cincotta noted that with oil prices hovering above $90 per barrel, inflation concerns persist, and worries about the ballooning U.S. deficit have not subsided. The banking sector, in particular, faces multiple headwinds, including elevated bond yields, a deteriorating economic outlook, and the possibility of further rate hikes from the European Central Bank.
Corporate earnings have provided some support for equities. According to the latest LSEG I/B/E/S survey, STOXX 600 constituent companies are expected to post profit growth of 24.1% for the latest quarter, up from the 23.4% estimate a week earlier, underscoring the resilience of European corporate fundamentals.
German government bond yields have climbed to 15-year highs, reflecting the country’s rising defense spending needs and aligning with the broader trend of rising sovereign yields across major global economies. Market participants noted that investor concerns over expanding government debt, compounded by inflationary pressure from elevated oil prices, continue to erode the appeal of risk assets.