Europe: Shares fall as mixed Middle East signals cloud outlook

[BENGALURU] European shares fell on Friday (Mar 27) but logged a modest gain for the week, illustrating the conflicting signals from the Middle East that investors have had to grapple with.The pan-European Stoxx 600 index dropped 0.9 per cent on the day and was last trading at 575.37, with most sectors in the red. Still, the index gained 0.4 per cent for the week.While investors have been hoping for a swift resolution to the war, fatigue is beginning to set in as messages from Washington and Teheran diverge.US President Donald Trump has sparked hopes of a ceasefire in recent days, but Iranian officials have struck a more measured tone.Trump gave Iran another 10 days to reopen the Strait of Hormuz, a crucial shipping route for oil, or face the destruction of its energy plants, after Iran rejected his proposals to end the war.“If this situation is not resolved within the next couple of weeks, global oil inventories will decline toward historic lows and prices would need to rise to induce demand destruction,” said Sam Peters, portfolio manager at ClearBridge Investments.Oil prices gained, increasing pressure on European economies, which rely heavily on imports.“Stocks will not start to find their footing on a meaningful basis until we have negotiations underway that explicitly involve the reopening of the Strait of Hormuz. Iran has its foot on the windpipe of the global economy,” said IG’s chief markets analyst, Chris Beauchamp.The economic repercussions of the war are beginning to reflect in data. A survey earlier this week showed that private sector growth slowed sharply in March as the war drove input costs to their highest in more than three years and triggered the worst supply-chain disruptions since mid-2022.Worries about a potential surge in inflation have lifted bets for an April rate hike by the European Central Bank to 57 per cent, according to LSEG-compiled data. Prior to the war, investors were largely expecting the central bank to hold rates through the year. REUTERS