European shares edged lower on Wednesday as investors remained cautious over inflation risks linked to the ongoing war, while markets closely monitored negotiations between the United States and Iran.
The pan-European STOXX Europe 600 slipped 0.2% to 610.37 points as of 0701 GMT.
Regional markets also traded lower, with Germany’s DAX and France’s CAC 40 both declining 0.2%.
Inflation concerns weigh on sentiment
Investor sentiment remained under pressure as concerns over war-driven inflation continued to impact bond markets.
Brent crude traded at around $110 a barrel, reflecting ongoing concerns surrounding geopolitical tensions and energy supply risks.
At the same time, bonds remained under pressure as money markets anticipated at least two interest rate hikes from the European Central Bank before the end of the year.
Markets also tracked developments related to discussions between Washington and Tehran.
US President Donald Trump said on Tuesday that the war would be over “very quickly.”
Meanwhile, US Vice President JD Vance highlighted progress in talks with Tehran regarding a potential agreement aimed at ending hostilities.
EU and US move forward on trade agreement
In another development, the European Union reached a provisional agreement to remove import duties on US goods as part of a trade arrangement with Washington that was agreed last July.
The agreement comes ahead of Trump’s July 4 deadline, after he previously threatened to raise tariffs if the deal was not implemented.
The development remained in focus for investors assessing the broader impact of trade policy on European markets and economic growth.
EU approves tougher foreign investment screening rules
In a separate development, the European Parliament approved new foreign direct investment (FDI) screening rules that were provisionally agreed in December with the Council of the European Union.
The legislation still requires formal approval from the Council before it can enter into force 18 months later.
Under the revised framework, European Union member states will be required to screen investments across several sensitive sectors, including defence, dual-use goods, and critical technologies.
The updated rules are aimed at strengthening oversight of foreign investments across the bloc while creating greater consistency in screening procedures among the European Union’s 27 member states.
Corporate earnings provide support
Despite broader market weakness, some individual stocks posted gains following corporate updates.
Shares of Euronext rose 4.3% in early trading after the company reported first-quarter earnings that exceeded market expectations.
Meanwhile, Marks & Spencer advanced 5% after forecasting profit growth for the coming year.
The retailer’s annual profit had declined due to disruption caused by a cyber hack, but investors appeared encouraged by the company’s outlook for future earnings growth.
Overall, European markets remained cautious as investors balanced geopolitical developments, inflation risks, central bank expectations, and corporate earnings updates.
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