European shares tepid as markets weigh US-Iran deadlock
By Twesha Dikshit
Market Overview and Key Drivers
May 11 (Reuters) - European shares were muted on Monday, as stalled U.S.-Iran peace negotiations pushed oil prices higher and weighed on risk appetite.
The pan-European STOXX 600 was flat at 611.68 points, as of 0805 GMT. Regional bourses moved in different directions, with London's FTSE 100 edging 0.2% higher, while France's CAC 40 slipped 0.7%.
US-Iran Tensions and Market Sentiment
U.S. President Donald Trump rejected Iran's response to a peace proposal by Washington, calling it "totally unacceptable." Tehran proposed ending the war on all fronts, including Lebanon, along with compensation for war damage and claimed sovereignty over the Strait of Hormuz, Iranian state TV said.
Expert Commentary on Diplomatic Prospects
"While the re-escalation in hostilities interrupted recent optimism over a potential deal that could reopen the Strait, we still believe an eventual diplomatic solution should emerge," said Mark Haefele, chief investment officer, UBS Global Wealth Management.
"A resilient economic backdrop and robust earnings growth mean that investors should stay positioned for long-term equity gains through diversified exposure."
Impact on Oil Prices and European Vulnerability
The war has shuttered the Strait of Hormuz, a vital waterway for a fifth of global oil and liquefied natural gas flows, with soaring oil prices adding to concerns over the conflict's impact on inflation and growth.
Energy-dependent Europe remains vulnerable, with markets still trading about 4% below pre-war levels and lagging global peers that have rebounded on artificial intelligence-driven optimism.
Sector Performance
Defence and Luxury Shares
Defence shares fell the most, down 2.1%. Germany's Rheinmetall and Hensoldt dropped 9.2% and 5.6%, respectively. Shares of UK's Rolls-Royce, Bae Systems and Babcock shed between 3% and 4.3%.
Luxury stocks in the region shed 1.6%, with Burberry and LVMH slipping more than 1% each, while Hermes lost 2.4%.
Telecommunications Sector
The telecommunications index moved higher. BT gained 6.5%, while Vodafone rose 2.3%.
ECB Policy and Rate Hike Expectations
ECB Statements and Inflation Outlook
Martin Kocher, a governing council member of the European Central Bank, warned that the ECB would need to adjust interest rates soon if the inflationary outlook did not significantly improve.
Market Rate Hike Projections
Money markets expect two or more rate hikes from the ECB this year, with the first one expected as early as June.
Notable Movers
Among other movers, Delivery Hero advanced 8.2% after Dutch technology investor Prosus sold a 5% stake in the German food-delivery group to activist investor Aspex Management for roughly 335 million euros ($393 million).
UK's Compass Group gained 1.7% after the world's largest caterer raised its full-year profit outlook.
(Reporting by Twesha Dikshit; Editing by Sherry Jacob-Phillips)
