European stocks sagged on Tuesday, pressured by mounting tensions in the Middle East. Reports emerged that Iran had launched a ballistic missile at Israel, escalating the conflict.
Earlier, Israel announced its forces had entered southern Lebanon for what it described as a "limited" raid, a claim Hezbollah promptly refuted. Hours prior, a senior White House official revealed that the U.S. had intelligence suggesting Iran was gearing up for a ballistic missile strike on Israel.
"We are actively supporting defensive measures to help Israel counter this threat. Any direct military assault from Iran on Israel will have serious repercussions for Iran," the official stated.
This potential confrontation follows Israel's ground offensive against Hezbollah, a group backed by Iran, in southern Lebanon. The news propelled crude oil prices, with November deliveries jumping over 4%.
Investors were also processing a slew of European economic data, alongside U.S. job openings and September’s manufacturing activity data.
The pan-European Stoxx 600 index finished 0.38% lower. Germany's DAX fell 0.58%, France's CAC 40 dipped 0.81%, while the U.K.'s FTSE 100 edged up 0.48%. Switzerland's SMI slid 0.68%.
Elsewhere in Europe, markets in Austria, Finland, Greece, Poland, Portugal, Russia, Spain, Sweden, and Türkiye experienced significant losses. Conversely, Belgium, Denmark, Iceland, and Norway saw gains, with the Netherlands closing flat.
In the UK market, International Airlines Group plummeted nearly 5%. EasyJet, ICG, JD Sports Fashion, 3i Group, Barclays, Frasers Group, and BT Group all declined between 2.1% and 3.5%. BT Group, Standard Chartered, Hiscox, IMI, Weir Group, Lloyds Banking Group, and Antofagasta also posted notable losses.
On the upside, BAE Systems climbed nearly 3%. BP, WPP, Shell, RightMove, AstraZeneca, Severn Trent, United Utilities, Fresnillo, National Grid, LondonMetric Property, Endeavour Mining, Next, British American Tobacco, Marks & Spencer, Relx, Compass Group, and Entain gained between 1% and 2.5%.
In Germany, Henkel, Infineon, Deutsche Post, Adidas, Sartorius, and Zalando fell between 2% and 3%, with Volkswagen down nearly 2%. Continental, BMW, Munich RE, Commerzbank, Daimler Truck Holding, BASF, Siemens Healthineers, RWE, Merck, and Hannover Rueck also saw significant declines.
Conversely, Covestro surged around 3.75% on news that Abu Dhabi’s state oil firm ADNOC will acquire the German chemicals producer in a €14.7 billion deal ($16.4 billion), offering €62.00 per share for all outstanding shares.
Rheinmetall surged over 5.5%, while Siemens Energy, Vonovia, and MTU Aero Engines advanced between 2% and 3%.
In France, LVMH, Renault, STMicroelectronics, Kering, Hermes International, and L'Oreal dropped between 2.5% and 4%, with Airbus Group, Accor, Publicis Groupe, Michelin, Air Liquide, and Societe Generale declining between 1% and 2%. Edenred rose about 3.5%, and Thales gained 2.5%. TotalEnergies, Teleperformance, Sanofi, and Carrefour posted gains between 1% and 1.5%.
On the economic front, Eurostat’s flash data indicated that Eurozone inflation moderated more than expected in September. The harmonized index of consumer prices increased by 1.8% annually, down from 2.2% in August, with economists forecasting a reduction to 1.9%. Excluding energy, food, alcohol, and tobacco, core inflation edged down slightly to 2.7% from 2.8%.
Eurozone manufacturing continued to contract deeper in September, with output, orders, employment, and procurement activity all declining, according to final data by S&P Global. The HCOB factory Purchasing Managers' Index dropped to 45.0 from 45.8 in August, the lowest year-to-date, with a flash reading of 44.8.
The UK manufacturing sector maintained healthy growth in September, though the pace decelerated from August’s 26-month high. The manufacturing PMI decreased to 51.5 from 52.5 in August, yet remained above the 50 threshold that signifies expansion.
Data from the British Retail Consortium showed UK shop prices fell by 0.6% year-on-year in September, double the decline from August, amid significant discounts and intense competition. This drop was below the three-month average rate of -0.3%, marking the lowest annual growth since August 2021.
Swiss retail sales increased for the second consecutive month in August, rising 3.2% annually, surpassing the expected 2.6% increase. Sales of food, drinks, and tobacco grew by 3.2%, with the non-food sector posting a 2.5% gain.