European markets opened lower on Thursday as renewed military tensions in the Gulf raised concerns over the stability of the fragile ceasefire between the United States and Iran. Major index futures signaled a weak start to trading, with the FTSE MIB expected to open down 0.4% or approximately 207.5 points after shedding 0.6% to 49,578.67 points. London's FTSE 100 was down 63.00 points, Paris's CAC 40 shed 59.60 points, and Frankfurt's DAX 40 declined 144.00 points. The market's negative opening reflects growing uncertainty about the Middle East situation, despite ongoing diplomatic discussions aimed at ending the nearly three-month-long crisis. According to the Wall Street Journal, citing officials familiar with the matter, U.S. forces destroyed a drone and targeted a drone-control facility near the southern Iranian port city of Bandar Abbas following Iranian drone attacks targeting commercial vessels in the Strait of Hormuz. In the latest developments, both the US and Iran launched new strikes, keeping investors on edge and contributing to persistent market volatility.
Market performance showed divergent trends across sectors as traders processed conflicting signals. According to TradingView, luxury, cyclical, pharmaceutical, and financial stocks led the declines, while the technology sector outperformed. Among major movers, HSBC Holdings (-1.4%), Novartis (-1.8%), AstraZeneca (-2.6%), Bayer (-2.1%), LVMH (-1.5%), Hermès (-1.8%), and Intesa Sanpaolo (-1.2%) traded lower. However, ASML Holding (+0.5%), Shell (+0.3%), and STMicroelectronics (+2.5%) posted gains. French semiconductor materials supplier Soitec shot up 24.6% after reporting annual sales above market expectations, while peers including Infineon and STMicroelectronics added 4.4% and 3.2% respectively. Satellite companies such as Eutelsat rose 5.8% and OHB added 4.2% as Europe announced plans to allocate valuable mobile satellite spectrum to European companies. Eni declined 2.8% following a retreat in crude prices, while Eni announced purchasing 3.4 million treasury shares for a total value of €79.9 million between May 19-22 at an average price of €23.7630 each.
Energy markets reacted strongly to the growing instability, with Brent crude futures rising 2.6% to $96.72 per barrel. Although oil prices remained below the symbolic $100-per-barrel level, they continue to trade significantly above levels seen before the conflict began. The oil price increase reflects market concerns about potential supply disruptions in the region, with crude prices remaining a concern for energy-dependent Europe. Kuwait's military reported intercepting incoming missiles and drones, ending what had previously been a relatively calm period lasting several weeks without direct attacks. Oil prices remain well above pre-conflict levels, contributing to persistent market volatility as investors grapple with ongoing Middle East tensions. Eni purchased 3.4 million treasury shares for a total value of €79.9 million as the company continues to manage its shareholding structure amid market uncertainty.
Market sentiment received a boost from reports of potential ceasefire extension negotiations between the United States and Iran. Axios reported citing two U.S. officials and a regional source that U.S. and Iranian negotiators agreed on a 60-day memorandum of understanding to extend the ceasefire, with further negotiations on Iran's nuclear program. However, President Donald Trump has yet to give the agreement his final approval, according to the report. David Wagner, head of equities at Aptus Capital Advisors, noted that "the market has been expecting some type of MOU — memorandum of understanding — here. You're going to see the discretionary names run as a first knee-jerk reaction to a lot of this news, which can drive the market higher." The potential agreement has provided some relief to markets that have been volatile due to ongoing Middle East tensions. Despite the recent tensions, US President Donald Trump remained optimistic that the US could reach an interim peace agreement with Iran "over the next week." Trump also said a memorandum of understanding to reopen the Strait of Hormuz could be reached, although several issues remain unresolved.
The technology sector demonstrated strong performance with Snowflake shares soaring approximately 37% after the cloud-based data platform provider issued rosy fiscal second quarter guidance and beat on both top and bottom lines in its latest quarter. The company also announced a plan to spend $6 billion on Amazon Web Services over five years, helping lift other enterprise software stocks with the iShares Expanded Tech-Software Sector ETF rallying nearly 3%. Memory stocks jumped significantly, with Sandisk shares climbing more than 6%, while chip giants such as Qualcomm and Advanced Micro Devices jumped 6% and 5% respectively. The S&P 500 and Nasdaq Composite gained 0.6% and 0.9% respectively, with the Dow Jones Industrial Average remaining flat. Several companies announced significant developments, including TXT e-solutions falling 0.3% after announcing leadership of a €28.0 million project funded by the European Defence Fund, and ESI surging 9.1% following a binding agreement with Innovatec Spa for merger. The Italian Sea Group gained over 18% following strong performance, while Aeffe advanced 3.6% as it accelerates its turnaround process.
Market analysts expressed concerns about the broader economic implications of ongoing tensions, with Kiran Ganesh from UBS Global Wealth Management noting that "a lot of the good news around this has been priced in over the early part of the week." According to Reuters, James Rutland from Invesco highlighted that "the big uncertainty is how the consumer reacts to higher energy prices in the second half of the year." Current forecasts predict a 6% fall in 2026 compared to 2025 in the baseline scenario, despite tensions in the Middle East. However, second-round effects are expected with a lag of several months, particularly via food prices. Rising gas prices are passed on to nitrogen fertilisers and, through this channel, to agricultural production costs, explaining the expected rise in food inflation in 2027 (3.3% after 2.2% in 2026). The European Central Bank policy meeting next month will be the next big catalyst for the market, with traders pricing in about 90% chances of a 25-basis-point rate hike due to rising energy prices and geopolitical uncertainty.
