European equities continued to retreat on Tuesday as a widening global sell-off gathered pace amid mounting concern that fighting in the Middle East could persist and push up living costs through higher energy prices.
By 0804 GMT the pan-European STOXX 600 was down 1.3% at 615.72 points, after having closed at its weakest level in over two weeks on Monday. The slide was broad-based but particularly acute in interest-rate-sensitive and financial stocks: the utilities index and banks each fell 2.6%. Energy stocks bucked the decline, advancing slightly and adding to gains recorded in the previous session.
Market pressure intensified after a series of public statements linked to the conflict. U.S. President Donald Trump sought to justify what he described as a broad, open-ended war on Iran, saying "the stated aims of the conflict had shifted." At the same time, an official from Iran's Revolutionary Guards declared "the Strait of Hormuz is closed and any vessel trying to pass would be targeted," a remark that pushed up global oil and gas shipping rates.
Concerns about the macroeconomic fallout from a protracted conflict were underscored by European Central Bank Chief Economist Philip Lane, who told the Financial Times that a long war "could massively put upward pressure on inflation and reduce growth rate in the euro zone." Such comments appeared to reinforce investor fears that higher energy costs would translate into wider consumer price increases and slower economic activity.
On the corporate front, French aerospace and technology group Thales bucked the broader weakness, rising 0.7% after reporting an annual core profit that was slightly above expectations.
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With equities pressured by geopolitical uncertainty and the prospect of higher energy-related costs, investors monitored sectors linked to consumer spending, financials and utilities for signs of contagion across broader markets.