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Finance

European shares sag as investors weigh Iran-Israel ceasefire

Published by Global Banking and Finance Review

Posted on June 25, 2025

Featured image for article about Finance

By Sukriti Gupta, Sanchayaita Roy and Pranav Kashyap

(Reuters) -A rally in European stocks hit a roadblock as investors weighed the fragility of the Israel-Iran ceasefire, with attention quickly shifting to the looming U.S. tariff pause deadline.

The pan-European STOXX 600 index lost steam after Tuesday's best intraday jump in over a month, dipping 0.7% as a wave of red swept across most sectors. Only four sectors bucked the trend.

Defence stocks jumped after NATO's pledge for a major boost in military spending. U.S. President Donald Trump reassured allies of Washington's support.

Meanwhile, major regional bourses closed lower. Spain led the slide with a 1.6% drop. Concerns over its defence budget shortfall lingered. Data showed its economy cooled to a 0.6% growth pace in early 2025.

Germany shed 0.6%, despite a new record investment budget, while France and Britain slipped 0.8% and 0.5%, respectively.

Across the geopolitical stage, the U.S.-brokered ceasefire between Israel and Iran appeared to hold, though scepticism lingered.

Hopes for a durable peace rose after promising U.S.-Iran talks, but investors remained cautious, eyeing the fast-approaching July 8 U.S. tariff pause deadline as the EU scrambled to secure trade deals, with progress limited outside of an agreement with London.

"European stocks still face trade tensions and the ECB's easing and interest in European defense stocks are now no longer strong factors anymore," said Ipek Ozkardeskaya, senior analyst at Swissquote Bank.

"That's why yesterday's rebound in the European stocks was overstretched and we might see some consolidation and even maybe some bearishness in the coming days."

European auto stocks accelerated 1.3%. Data showed May car sales rose 1.9% year-on-year.

Stellantis rose 3% after Jefferies upgraded the carmaker to "buy" from "hold".

Babcock topped the STOXX index with a 10.7% rise after the British defence engineering company upgraded its medium-term guidance.

Shares of energy giants BP and Shell will be in focus on Thursday after the Wall Street Journal reported that Shell is in early talks to buy rival BP.

Meanwhile, Wall Street looked to Washington, where Fed Chair Jerome Powell struck a cautious tone in Senate testimony, pledging a "careful approach" on future policy moves.

(Reporting by Sukriti Gupta, Sanchayaita Roy and Pranav Kashyap in Bengaluru; Editing by Sonia Cheema and Mrigank Dhaniwala and David Gregorio)