By Johann M Cherian and Tharuniyaa Lakshmi
July 8 (Reuters) – European shares slid to a one-week low on Wednesday after U.S. President Donald Trump said the initial agreement to end the war with Iran was over, rekindling worries about the Middle East conflict and higher oil prices.
The pan-European STOXX 600 index was down 1.6% at 636.08 points by 0839 GMT and was on track for its biggest one-day drop since the height of the Iran conflict in mid-March.
Most sectors were lower, with defence stocks down 3.5%, while a 5% jump in crude prices lifted the energy sector by 2%.
Higher energy prices weighed on airlines including Air France and Wizz Air, which lost more than 5% each, while auto stocks fell 3.3%. Lufthansa dove 5.4% after Citigroup downgraded the stock to “sell” from “neutral”.
Asked before a NATO summit in Turkey, hours after the U.S. and Iran traded fire and Washington revoked a licence allowing Tehran to sell oil, Trump said, “As far as I’m concerned, it’s just a waste of time dealing with them.”
“It’s still a major setback just as nations around the world have been breathing a sigh of relief that a longer-term resolution looks set to be on the table,” said Susannah Streeter, chief investment strategist at Wealth Club.
“You’re likely to see downbeat sentiment spread. The surging oil prices have sparked worries again about persistent inflation, with the Middle East tinderbox reigniting again.”
Markets had been paring expectations for another interest rate hike by the European Central Bank before the end of this year, and policymakers had flagged that growth and inflation risks were more balanced following the recent ceasefire.
However, following Tuesday’s developments traders are now pricing in 38 basis points of rate hikes this year, LSEG-compiled data showed, up from 25 bps on Tuesday.
Spain’s IBEX index lost the most among regional bourses, down 2.3% to a three-week low after Trump said he had ordered Treasury Secretary Scott Bessent to cut off all trade with Spain, calling Madrid a “terrible partner” in NATO.
Investors also kept a close watch on technology stocks globally, which have had a shaky start to July after a strong AI-driven June quarter.
South Korean equities closed 20% below a record high reached in June, confirming a bear market. The tech-heavy Nasdaq closed below its 50-day moving average overnight, indicating weak short-term momentum.
European technology stocks were mixed, with chip equipment maker ASML marginally higher, while chip company Aixtron fell more than 2%.
Among individual stocks, Bahnhof jumped 16.5% after telecom operator Telenor agreed to buy a controlling stake in the Swedish broadband provider in a deal valuing it at 6.1 billion Swedish crowns ($629.7 million).
(Reporting by Johann M Cherian and Tharuniyaa Lakshmi in Bengaluru; Editing by Sherry Jacob-Phillips and Subhranshu Sahu)
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