Investing.com – European equities were mixed on Tuesday, as markets weighed the risks of surging crude prices and near-certainty of an imminent European Central Bank interest rate hike later this week.
The pan-European index closed 0.05% lower.
Germany’s gained 0.09%, France’s rose 0.14% and London’s fell 0.05%.
Heavyweight shares fell more than 10% after the Swiss drugmaker’s experimental muscle disease drug failed a late-stage clinical trial.
Persian gulf retaliation threats drive crude higher
Crude oil benchmarks advanced for a third consecutive session, adding to a massive multi-day rally that has held firm past $90 a barrel.
The commodity surge gained renewed momentum after Iranian military officials warned they would retaliate against any further U.S. or allied strikes by directly targeting energy infrastructure across the Persian Gulf, specifically threatening U.S. oil and gas assets operating in the region.
The threat of direct kinetic attacks on regional energy processing facilities and export terminals – paired with ongoing transit choke points around the Strait of Hormuz – has elevated market anxieties from temporary shipping delays to potential long-term structural supply destruction.
For energy-import-dependent European bourses, higher input costs raise immediate cost-push inflation risks while threatening to compress forward corporate profit margins.
ECB rate hike keeps equity valuations under pressure
Compounding the energy shock, European equity valuation multiples faced continued gravity from fixed-income markets ahead of Thursday’s European Central Bank (ECB) Governing Council meeting.
Money markets have almost fully baked in a 25-basis-point interest rate increase from ECB President Christine Lagarde and policymakers this week:
The pricing follows preliminary August Eurozone CPI data showing headline inflation accelerating to 3.3% year-on-year, driven by a 14.3% surge in energy components.
With energy prices continuing to climb, investment banks including Deutsche Bank have begun pricing in additional tightening beyond September, raising bets on a follow-up rate hike before year-end.
The hawkish central bank outlook has kept benchmark hovering near multi-year peaks of 3.36%, compressing the equity risk premium and elevating refinancing costs across corporate balance sheets.
High-stakes U.S. CPI print to dictate global rate expectations
Beyond Thursday’s ECB decision, global equity bourses are bracing for a critical U.S. Consumer Price Index (CPI) report scheduled for release later in the week.
Following last week’s unexpectedly strong U.S. nonfarm payrolls report – which showed 162,000 jobs added in August – investors view the inflation readout as the final piece of the puzzle that will make or break the case for the Federal Reserve to deliver a 25-basis-point rate hike at its Sept. 15 – 16 FOMC meeting.
A hot CPI reading would reinforce hawkish pricing across global rate curves, while any signs of moderating inflation could offer brief respite to battered equity bourses.
Among other stock movers, rose as much as 5.1% after the Swiss drugmaker said it aims to more than double revenue by 2035, driven by an expanded biosimilar portfolio and a wave of drug patent expirations.
jumped as much as 5.7% after the French energy distributor raised its full-year earnings forecast as first-half EBITDA jumped 18%, driven by high oil prices and strong demand across Africa and the Caribbean.