European stocks hit one-month low as Middle East conflict drives bond rout

European equities slid to a one-month low on Wednesday as a global bond selloff and surging oil prices, fueled by escalating military conflict between the United States and Iran, weighed heavily on investor sentiment across the continent.

The pan-European STOXX 600 fell 0.3% to 645.42 points in morning trading, with retailers leading declines at 1.5%, according to Reuters. Germany's DAX shed 0.3%, while France's CAC 40 dropped 0.4% to touch a near two-month low. Britain's FTSE 100 edged up marginally, supported by large oil and mining stocks.finance.biggo+2

Middle East Conflict Fuels Energy and Bond Market Turmoil

The U.S. military launched a second round of airstrikes against Iranian military targets within three days, while Iran claimed it had retaliated with missile strikes on U.S. bases in Jordan and Bahrain. President Donald Trump downplayed the prospect of a near-term diplomatic resolution.reuters+1

Brent crude prices broke above $95 a barrel, reaching a six-week high. European natural gas prices hit their highest level since January 2023, with the October TTF contract rising more than 10% for the week. The energy shock rippled through bond markets, pushing the yield on German 10-year bonds to their highest since April 2011. Investors now see a roughly 35-40% chance that the European Central Bank's deposit rate could reach 3% by March 2027, up from 25% a week earlier.finance.biggo+2

Lufthansa Deutsche Lufthansa AG shares fell after the airline suspended flights to Dubai, Abu Dhabi, Amman, Beirut, and several other Gulf destinations until at least late October. Nokia ↗ 2.68% rose nearly 2% after index provider STOXX announced the Finnish telecom equipment maker would rejoin the Euro STOXX 50, replacing Volkswagen.marketscreener+2

Inflation Data and ECB Expectations Add Pressure

Eurozone inflation accelerated to 3.3% in August from 2.9% in July, its highest reading since September 2023, reinforcing expectations that the ECB will raise rates by a quarter point at next week's policy meeting. Deutsche Bank ↘ 4.34% rose 2.2% after Goldman Sachs The Goldman Sachs Group, Inc. ↘ 0.36% upgraded the stock to "buy," while banking stocks broadly helped limit losses on the STOXX 600.finance.yahoo+2

Mark Haefele, chief investment officer at UBS ↘ 2.03% Global Wealth Management, struck a cautiously optimistic note despite the turbulence. "Improving activity, stronger earnings, and reasonable valuations support further gains," he wrote, maintaining an "Attractive" stance on eurozone equities.marketscreener

Markets are now focused on U.S. ADP private-sector employment data due later Wednesday and the August nonfarm payrolls report on Friday. Analysts warned that strong data would fuel rate-hike expectations, while weak data could raise stagflation fears — leaving equities vulnerable in either scenario.finance.biggo+1