Europe close: Energy stocks rise, travel plays fall on war in Iran

2nd Mar 2026 17:39

(Sharecast News) - European shares registered large losses on Monday after the US and Israel launched airstrikes on Iran over the weekend, assassinating the country's leader and several members of his administration, triggering sharp declines in airline and leisure stocks while defence and oil names rallied strongly.

As AJ Bell head of financial analysis Danni Hewson put it, "It's been a tough day for global markets as investors try to price in the escalating conflict in the Middle East," with investors swiftly reassessing geopolitical risk.

The pan-European Stoxx 600 fell 1.65% to 623.36.

Germany's DAX dropped 2.42% to 24,672.40 and France's CAC 40 declined 2.17% to 8,394.32, while London's FTSE 100 lost 1.2% to 10,780.11.

Markets had been braced for a fall after strikes on Tehran killed Ayatollah Ali Khamenei in a campaign US president Donald Trump said was aimed at regime change in the Persian Gulf state.

The attacks across multiple provinces prompted a forceful response from Iran, which fired missiles and drones across the region, striking US bases in Kuwait and Bahrain as well as targets in Israel, Oman, Dubai and the British air force base on Cyprus.

Brent crude jumped 10% to $80 a barrel, its highest level in more than seven months, amid fears of supply disruption after Iran's Revolutionary Guard warned ships against using the Strait of Hormuz, through which around 20% of the world's oil is transported.

Gas prices also surged.

Hewson noted that "the prices of oil, gas and gold have shot up to lift miners and oil giants Shell and BP, helping to stem losses on the FTSE 100 compared to its European counterparts," while adding that "unsurprisingly defence stocks are up and airlines are down as thousands of flights in the region are cancelled."

Despite the sharp moves, traders suggested the reaction had been relatively contained.

"Perhaps the surprise about today has been the relatively muted reaction across equity markets," said Chris Beauchamp, chief market analyst at IG.

"Oil prices reacted in suitably dramatic fashion, but today has seen US indices emerge as something of a safe haven.

"Given their poor performance versus other markets so far this year, this perhaps isn't a surprise, and today's reaction certainly falls into the category of 'sell the rumour, buy the fact'.

"It is early days of course, but stocks seem able to live with the war in the Middle East so long as it doesn't escalate."

Eurozone manufacturing sector returns to growth

On the economic front, the eurozone manufacturing sector returned to growth in February.

The S&P Global eurozone manufacturing PMI rose to 50.8 from 49.5 in January, marking the strongest improvement since June 2022 and the first reading above the 50.0 threshold since August last year.

Germany was the standout performer, with its PMI rising to 50.9 from 49.1, the first expansion in more than three and a half years.

France was the only country to slow, with its PMI easing to 50.1 from January's 51.2.

Dr Cyrus de la Rubia, chief economist at Hamburg Commercial Bank, said there appeared to have been a broad-based recovery, with six of the eight surveyed countries now in growth territory, though he cautioned that the rebound remained moderate and faced structural challenges including high energy prices, competition from China and US tariffs.

He noted that input prices had accelerated for four consecutive months, with companies only partially able to pass on higher costs, potentially squeezing margins.

German retail sales fell 0.9% month on month in January, worse than the 0.2% decline expected, though they were up 1.2% year on year, according to Destatis.

Food sales were flat on the month and rose 0.9% annually, while non-food sales dropped 1.7% compared with December.

Online and mail-order sales increased 2.5% on the month.

In the UK, the S&P Global manufacturing PMI was 51.7 in February, slightly below the flash estimate of 52.0 and January's 51.8, marking a fourth consecutive month above the 50.0 threshold.

New export orders rose at the fastest pace in four and a half years, with demand improving from mainland China, the European Union, the Middle East and North America, while output increased at the quickest rate in 17 months.

Rob Dobson of S&P Global Market Intelligence said the sector had made an encouraging start to 2026, though Matt Swannell of the EY Item Club warned that geopolitical disruption in the Middle East could reverse recent gains.

A separate survey from the Confederation of British Industry showed that private sector activity was expected to decline over the next three months, though pessimism eased.

The CBI's growth indicator came in at -13%, compared with -19% in the three months to February and -33% in the three months to January.

Firms expect distribution sales and manufacturing output to fall, with balances of -36% and -12% respectively, while services volumes are forecast to decline by -5%, as sharp weakness in consumer services was partly offset by improvements in business and professional services.

Charlotte Dendy of the CBI said expectations were at their least negative since November 2024 but remained well below the long-run average.

In the US, the ISM manufacturing PMI edged down to 52.4 in February from 52.6, remaining above the 50.0 threshold and ahead of the 51.8 consensus.

The prices paid index jumped 11.5 points to 70.5, its highest level since June 2022, as new orders and production continued to expand, though at a slower pace.

Beauchamp noted that "today has seen US indices emerge as something of a safe haven," reinforcing the relative resilience of American markets.

Energy and defence names jump, travel stocks sink

In equity markets, oil producers surged in response to the jump in crude prices.

Equinor rose 5.26%, BP gained 2.14%, Var Energi advanced 5.09%, Galp climbed 7.27%, Repsol added 5.6%, Aker BP rose 1.21% and Shell increased 1.9%.

Defence stocks also rallied, with BAE Systems up 6.11%, Renk 3.32% higher, Hensoldt up 4.91%, Leonardo gaining 2.5% and Kongsberg adding 2.71%.

Airlines were hammered as flights were cancelled and travel through the region was suspended.

British Airways owner IAG fell 5.59%, Lufthansa dropped 5.22%, easyJet declined 3.48% and Ryanair lost 1.57%.

The turmoil also hit other leisure names, with Carnival slumping 8.09%, TUI tumbling 9.9%, InterContinental Hotels Group down 4.15% and Accor falling 8.89%.

Reporting by Josh White for Sharecast.com.