European shares drop as escalating US-Iran tensions weigh on sentiment

By Johann M Cherian

May 28 (Reuters) – European shares slipped on Thursday as escalating tensions in the Middle East clouded the outlook for an imminent deal to open the Strait of Hormuz, adding to concerns about the ​health of the global economy.

The pan-European STOXX 600 dropped 0.6% to 624.28, ‌as of 0925 GMT, with all major regional bourses also lower.

Prices of crude oil, a key resource for energy-deficient Europe, shot up over 2.5% to $97 a barrel as hostilities escalated between Iran and the U.S., while Kuwait said that its air defences were intercepting hostile missile and drone threats, similar ‌to ​the attacks seen during the heat of the conflict ⁠in March.

Energy price-sensitive airlines such ⁠as Air France and Ryanair dipped about 2% each.

“If you look at what companies did with their earnings, there were no real changes in guidance. The big uncertainty is how the consumer reacts to higher energy prices in the second ​half of the year,” said James Rutland, a fund manager at Invesco.

“But as yet, we have not seen any real impact on company profitability. I’m sure there ⁠will be some.”

With simmering geopolitical tensions, uncertainty persists ⁠over the European Central Bank’s rate path, as traders price in ​at least two 25-basis-point interest rate hikes by year-end, according to data compiled by ​LSEG.

The STOXX 600’s smaller exposure to technology stocks has also led to ‌a longer road to record highs, compared with benchmark indexes in Asia and the U.S.

French semiconductor materials supplier Soitec shot up 20% after reporting annual sales above market expectations.

Peers such as Infineon and ST Microelectronics added more than 2% each.

Global uncertainty sparked by ⁠the United States’ shift in trade and security policy is pushing Europe to reduce its reliance on its longtime partner.

Defence stocks such as Renk added 6.2%, Rheinmetall gained 4.3%, and ⁠Saab rose 4.8%, as ‌countries such as Canada and Norway sought deals with European ⁠companies.

Satellite companies such as Eutelsat rose 2.4% and OHB added 11.8%. ​Europe ‌announced plans to allocate the bulk of valuable mobile satellite ​spectrum to European ⁠companies while reducing the share U.S. operators can acquire.

Among others, BT lost 3.2% after a media report said the British government will oppose any attempt from Indian billionaire Sunil Bharti Mittal to increase his stake in the telecoms group, citing the need to maintain sovereign control over “critical national infrastructure”.

(Reporting by Johann M Cherian and Pranav Kashyap in Bengaluru; ​Editing by Rashmi Aich)