European equity markets traded little changed on Thursday as investors balanced easing inflationary pressures in the United States against rising geopolitical risks in the Middle East. While expectations of a patient Federal Reserve provided support, escalating tensions involving Washington and Tehran continued to keep energy prices elevated and limited risk appetite.
Markets remain steady despite geopolitical uncertainty
The pan-European STOXX 600 was broadly unchanged in early trading, outperforming weaker sentiment across Asian technology markets.
Germany’s DAX, France’s CAC 40 and Italy’s FTSE MIB also traded close to flat, while London’s FTSE 100 slipped 0.4%.
Investor sentiment remained heavily influenced by developments in the Middle East. Oil prices stayed near one-month highs after further US military strikes in Iran, while Tehran warned that the conflict could develop into what it described as an “existential war” with the United States.
Softer US data supports rate expectations
Providing some support to markets, the latest US inflation data reinforced expectations that the Federal Reserve is unlikely to tighten monetary policy in the near term.
Producer Price Index (PPI) figures released overnight came in below expectations, adding to recent evidence of moderating consumer inflation and a cooling labour market.
As a result, financial markets have reduced expectations of further policy tightening, with the implied probability of a Federal Reserve interest rate increase as early as July falling to around 10%.
Earnings season and AI remain in focus
Investors are also awaiting quarterly results from Taiwan Semiconductor Manufacturing Company (NYSE:TSM), widely viewed as a key indicator of demand across the semiconductor and artificial intelligence industries.
The update is expected to provide further insight into the durability of global investment in AI infrastructure as the second-quarter earnings season gathers pace.
Analysts currently expect companies within the STOXX 600 to deliver earnings growth of approximately 14.5% year over year, representing the strongest rate of profit growth in more than three years. However, much of that increase is being driven by a sharp rise in energy sector earnings following higher oil prices linked to geopolitical tensions.
Excluding oil and gas companies, underlying earnings growth across European businesses is expected to be closer to 5.5%, with investors closely monitoring management commentary on profit margins and artificial intelligence-related investment.
Movers
Among individual stocks, Rotork (LSE:ROR) surged 65% after ABB agreed to acquire the engineering company in a US$5.5 billion deal.
Partners Group (LSE:PEY) fell 7% following the release of its quarterly results.
Frasers Group (LSE:FRAS) declined 5% after reporting annual results that fell short of profit expectations.
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