European Shares Open Steady as Middle East Conflict Drags On

European shares gain marginally as investors weigh conflict fallout, await ECB rate decision

Market Overview and Key Drivers

By Pranav Kashyap and Avinash P

March 17 (Reuters) - European shares rose marginally on Tuesday, as investors weighed the economic fallout from the prolonged conflict in the Middle East and the European Central Bank's interest rate decision later this week.

Performance of Major European Indices

The pan-European STOXX 600 edged up 0.3% at 600.32 points by 1015 GMT. London stocks climbed 0.5%, Paris rose 0.5%, while Madrid and Milan each gained nearly 1%. 

Frankfurt paired gains after and was last flat after German investor morale declined more than expected in March. 

Sector Highlights

Utilities, a traditionally defensive corner of the market often viewed as a bond proxy, advanced 1.6%.

Energy stocks also stayed firmly in favour. Shell rose 1% as crude prices held above $100 a barrel, extending a rally driven by mounting concerns over supply disruption in the Middle East.

Europe remains particularly exposed to energy shocks, given its sensitivity to price spikes and dependence on Middle Eastern oil.

Geopolitical Tensions and Economic Impact

There were few signs of the war easing, with Iran launching fresh attacks on the United Arab Emirates on Tuesday. Traffic through the Strait of Hormuz remains largely shut, and with no clear timeline for the reopening of the vital waterway, fears are growing that a prolonged supply squeeze could keep inflation simmering.

Central Bank Focus

Against this backdrop, investor focus will be on comments from central bankers, especially ECB President Christine Lagarde who is due to speak later in the day.

"She'll keep options open", said Joost van Leenders, senior investment strategist at Van Lanschot Kempen.

"Volatility in rate expectations can last. If oil spikes again to $110, you could see expectations move back to two ECB hikes. If oil prices ease and flows resume through the Strait of Hormuz, expectations could shift back to no hikes."

ECB Rate Decision Outlook

The ECB is widely expected to leave rates unchanged later this week, but its accompanying statement will be parsed closely for clues on future policy. 

Markets are currently pricing in at least one ECB rate hike before the end of the year. However, those expectations remain highly volatile, with rate-hike bets rising by more than 40 basis points since the outbreak of the Middle East conflict, according to LSEG data.

Stock Movers and Company Highlights

Meanwhile, defence stocks, which had rallied over the past three weeks on expectations of higher military spending linked to the Middle East conflict and the Russia-Ukraine war, pulled back on the day, weighing on the index.

Among other movers, Springer Nature advanced 8% after the German publisher's 2026 outlook came in better than expected.

Sartorius Stedim Biotech added 5.4% after the pharma group set new mid-term growth targets, while its German parent Sartorius gains 5.1%.

Fraport said it expects a slight rise in 2026 earnings, sending the shares of the airport operator 5% higher.

(Reporting by Avinash P and Pranav Kashyap in Bengaluru; Editing by Mrigank Dhaniwala)