European stocks fall, oil rises after US strikes Iran

European Stocks Ease, Oil Prices Climb After U.S. Conducts Strikes in Southern Iran

By Elizabeth Howcroft

PARIS, May 26 (Reuters) - European equity indexes retreated from recent advances on Tuesday while oil prices increased after the United States carried out strikes in southern Iran. The moves followed statements that reduced expectations for an immediate agreement to end the conflict involving the United States, Israel, and Iran.

Market participants had adopted a more constructive stance in the prior week, anticipating reduced tensions in the conflict that began in late February and has affected oil and gas flows from the Middle East. On Tuesday, however, investors revised those expectations after the United States confirmed it had conducted strikes described as defensive in southern Iran. U.S. Secretary of State Marco Rubio stated on Tuesday that negotiations with Iran could require several additional days.

At 1051 GMT, the STOXX 600 index declined 0.2 percent, remaining near its highest level since the start of the conflict. The FTSE 100 in London rose 0.7 percent, while Germany’s DAX fell 0.5 percent. The MSCI World Equity Index was unchanged on the day but has gained 3.8 percent for the month to date.

Peter Schaffrik, global macro strategist at RBC Capital Markets, noted that developments in the Middle East continued to influence market pricing. He observed that conditions had shifted from expectations of an agreement to references to the Abraham Accords and then to military actions, leaving the immediate outlook unclear. The remarks referenced statements by U.S. President Donald Trump on Monday concerning additional countries signing the accords during efforts to reach a settlement.

U.S. equity futures indicated gains for the upcoming session, with S&P 500 e-minis advancing 0.7 percent and Nasdaq e-minis rising 1.1 percent. Brent crude futures increased 2.4 percent to $98.50 per barrel. West Texas Intermediate crude stood at $92.04 per barrel, 4.7 percent below Friday’s settlement; no WTI settlement occurred on Monday because of the U.S. Memorial Day holiday.

Schaffrik added that some market participants continued to anticipate a reopening of the Strait of Hormuz in the near term. Brent prices have declined from a late-April peak above $120 per barrel. European market participants also assessed comments from European Central Bank board member Isabel Schnabel, who told Reuters that the central bank should proceed with an interest-rate increase in June regardless of whether current talks produce an agreement. Schnabel cited the extended duration of the conflict and the transmission of elevated energy costs into the wider economy. Money-market pricing reflected an approximate 90 percent probability of a rate increase at the ECB’s June meeting.

European government bond yields moved higher after the strikes, although the benchmark 10-year German yield remained near its lowest level in almost seven weeks at 2.9642 percent.