European equity markets moved lower on Tuesday as escalating conflict in the Middle East drove oil prices sharply higher, while investors remained cautious ahead of key US inflation data and closely watched Federal Reserve testimony.
The pan-European STOXX 600 index fell 0.6% in early trading. Energy and defence stocks outperformed the broader market, benefiting from the surge in oil prices.
Germany’s DAX declined 0.3%, France’s CAC 40 lost 0.6%, London’s FTSE 100 slipped 0.1% and Italy’s FTSE MIB eased 0.3%.
Airline shares came under pressure, with Air France-KLM (EU:AF) falling around 3% as rising fuel costs threatened to squeeze profit margins.
Hormuz Shipping Measures Lift Oil Prices
Investor sentiment deteriorated after US President Donald Trump announced the reinstatement of a naval blockade targeting Iranian shipping routes in the Gulf.
The US administration also confirmed it would impose a 20% fee on commercial cargo transported through the Strait of Hormuz, a key global shipping corridor for crude oil and liquefied natural gas.
The latest developments follow a third consecutive night of military strikes in the region, intensifying concerns over global energy supplies. Brent crude futures climbed more than 2% to around $85 per barrel, their highest level in a month, extending the previous session’s 9.6% rally.
Inflation Data and Fed Testimony in Focus
Market participants also remained cautious ahead of several important US economic events.
Federal Reserve Governor Christopher Waller warned that interest rates may need to rise further if inflation continues to remain significantly above the central bank’s 2% target.
His comments have placed greater emphasis on the latest US Consumer Price Index (CPI) report, due later in the day, which is expected to provide fresh insight into underlying inflation trends.
Investors are also preparing for two days of congressional testimony from newly appointed Federal Reserve Chair Kevin Warsh, with markets looking for further guidance on the outlook for US monetary policy.
Earnings Season Set to Drive Market Volatility
Beyond geopolitical and macroeconomic developments, attention is turning to the start of the second-quarter earnings season.
Investors are closely watching major US banks, which are due to release quarterly results later in the day. Their performance is expected to provide an important indication of how corporate America is coping with higher interest rates and a more restrictive monetary environment.
Among individual European stocks, Hapag-Lloyd (TG:HLAG) gained nearly 6% after reaffirming its full-year outlook.
Evotec (TG:EVT) plunged around 30% after releasing earnings results and providing a weaker-than-expected outlook.
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