European equities advanced slightly on Wednesday as traders continued to weigh an intensifying Middle East conflict alongside corporate earnings that painted a mixed outlook for parts of the region's economy.
At 03:05 ET (08:05 GMT) the major benchmarks were higher: Germany's DAX climbed 0.6%, France's CAC 40 gained 0.5% and the U.K.'s FTSE 100 rose 0.1%.
Geopolitical developments drive market caution
Security events across the Middle East remained a central focus for markets. U.S. and Israeli military actions against Iran continued overnight. U.S. Admiral Brad Cooper, the commander of U.S. forces in the Middle East, said Iran's air defences had been badly degraded, that 17 Iranian naval vessels had been sunk leaving no operational vessels on key waterways, and that more than 2,000 Iranian targets had been struck.
Meanwhile, Israel continued strikes targeting the Hezbollah group in neighboring Lebanon, after the militants fired on Israel in what the report described as retaliation for the death of Supreme Leader Ayatollah Ali Khamenei in the initial exchanges earlier in the week. Iran has also launched missiles and drones at neighboring Arab states that host U.S. forces, widening the geographic scope of the conflict.
Market strategists highlighted the immediate economic fallout from the flare-up. Analysts at Vital Knowledge noted that "energy prices have soared over the last couple of days, especially European gas, and this is preventing bonds/yields from acting as circuit breakers." They added that if energy remains at current elevated levels it would create a significant headwind for consumers globally. The analysts also observed a potential longer-term scenario in which the Iran campaign could, in time, lead to a positive outcome for equities by bringing an end to the war that began in 2023 - a development described as a possibility rather than a forecast.
Corporate earnings paint a mixed picture
Corporate results and guidance from several large European companies were also in focus on Wednesday.
- Bayer (ETR:BAYGN) provided a 2026 earnings target range that came in below market expectations. The German pharmaceuticals group is contending with expensive litigation and a substantial debt load, factors cited in its softer outlook.
- Continental (ETR:CONG), the German automotive supplier, guided for broadly stable sales and profitability in 2026 in its core tyres business amid what it described as persistently volatile demand.
- Adidas (ETR:ADSGN) said it expects operating profit to rise to around 2.3 billion this year, while noting a roughly 400 million negative impact from U.S. tariffs and adverse currency movements.
- SCOR (EPA:SCOR) reported fourth-quarter net income that beat expectations, with the French reinsurer delivering solid underwriting results in both property and casualty and life and health segments.
- Metro Bank (LON:MTRO) posted an underlying profit before tax of A398 million for full-year 2025, the highest level in its 15-year history, and said it beat its cost reduction targets.
- Traton (ETR:8TRA) proposed a dividend for fiscal 2025 of nearly half the amount paid a year earlier after reporting a sharp fall in earnings, a decline the truckmaker attributed to a near-collapse in its North American operations and costs related to U.S. tariffs.
Economic indicators and central bank outlook
Investors are also awaiting eurozone data that could provide further context for policy decisions, including the February services Purchasing Managers' Index and the latest unemployment figures for the currency bloc. However, market participants do not expect these releases to materially change European Central Bank thinking in the near term.
Tuesday's inflation data showed headline inflation in the 21 countries sharing the euro rose to 1.9% from 1.7% a month earlier, ahead of expectations for 1.7%. Analysts warned that if the conflict in the Middle East keeps energy prices high, inflation could increase further in coming months. For now, financial markets are not expecting an immediate change from the ECB's 2% deposit rate, although the chance of a rate hike later in the year has grown.
Oil and energy prices climb
Oil benchmarks extended recent gains on Wednesday as the deteriorating security situation in the Middle East raised concerns about supply disruptions. Brent futures rose 2.9% to $83.78 a barrel, while U.S. West Texas Intermediate futures gained 2.6% to $76.51 a barrel.
Both contracts had increased nearly 5% in the previous session, adding to Monday's roughly 7% jump, with Brent reaching its highest settlement since July 2024.
Supply-side constraints were underscored by reports that Iraq has cut output by nearly 1.5 million barrels a day - roughly half of its production - because of storage limits and a lack of an export route. Separately, Iran has targeted tankers in the Strait of Hormuz, the narrow chokepoint through which about a fifth of global oil and liquefied natural gas shipments transit, effectively halting traffic for a fourth consecutive day.
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Overall, modest equity gains on Wednesday reflected a balancing act between heightened geopolitical risk that is lifting energy prices and a series of corporate results that ranged from beat-and-upbeat to disappointing guidance.