Europe close: Stocks mixed as oil prices continue to fall

1st Jul 2026 15:56

(Sharecast News) - European bourses were mixed on Wednesday as investors took profits after the strongest calendar quarter since October 2020 and assessed a sharp fall in eurozone inflation.

The pan-European Stoxx 600 slipped 0.31% to 639.75.

Germany's DAX rose 0.29% to 25,069.11, while France's CAC 40 fell 0.79% to 8,337.29 and London's FTSE 100 declined 0.18% to 10,478.34.

In commodities, Brent crude futures were last down 2.17% on ICE at $71.37 per barrel, while the NYMEX quote for West Texas Intermediate fell 1.74% to $68.29.

Dan Coatsworth, head of markets at AJ Bell, said stocks across Europe and the US had stepped back as investors continued to worry about the prospect of the Federal Reserve raising interest rates.

"Markets are currently pricing in a 29.4% chance of a US interest rate hike at this month's Fed meeting, down from a 34.2% probability a week ago," he said.

"Theoretically, that should be positive for equities, yet what's troubling investors is the prospect of a rate hike at the end of the year."

Coatsworth said Fed chair Kevin Warsh appeared determined not to provide a running commentary on the likely direction of rates, but investors were still looking for clues.

Chris Beauchamp, chief market analyst at IG, said a more mixed tone had taken hold across global equities as technology weakness persisted and comments from Warsh reinforced the focus on inflation.

"Yesterday it was US yields bolstering the dollar, but today the FTSE 100 has taken a knock as UK and European yields move higher, slamming dividend payers in London's premier index," he said.

"Hopes had been high that stronger commodity prices might help the index on its way back to 11,000, but a new challenge of rising yields has arisen instead, dulling the appeal of many names."

Stalled diplomatic progress between the US and Iran weighed on sentiment.

Hopes of a lasting ceasefire had initially sparked a relief rally across Europe, but a fresh deadlock in Doha-mediated peace talks revived fears of renewed volatility around control of the Strait of Hormuz.

US special envoy Steve Witkoff and Jared Kushner, president Donald Trump's son-in-law, arrived in Doha to discuss the negotiations with Qatari mediators, although they were not expected to meet Iranian officials, according to Qatar's foreign ministry.

The talks followed another exchange of fire over the disputed waterway, despite a memorandum of understanding intended to create a path towards meaningful peace negotiations.

Beauchamp said oil prices had resumed their fall, even as talks remained fragile.

"If oil were to continue dropping at the rate it has in the past eight weeks then inflation might not be such a problem anyway," he said.

"While yet to break through recent lows, a trap door moment does appear to loom for Brent and WTI.

"Despite their differences, the US and Iran at least continue to talk about talking, while a cautious ceasefire continues to hold in the region."

Euro area inflation falls more than expected

On the economic front, eurozone inflation fell more than expected in June, driven by a sharp decline in energy costs.

A flash reading showed annual inflation dropping to 2.8% from 3.2% in May, below expectations for 3.0% and marking the first significant cooling in consumer prices across the bloc since January.

Energy inflation slowed to 8.7% from 10.8% in May as renewed diplomatic efforts and ceasefire discussions between the US and Iran eased global oil supply concerns.

Core inflation, which excludes energy, food, alcohol and tobacco, eased to 2.4% from 2.6%, while services inflation cooled to 3.2% from 3.5%. Food, alcohol and tobacco inflation slipped to 1.6% from 1.9%.

European sovereign bond yields fell after the data, with the softer reading making a back-to-back rate hike at the European Central Bank's 23 July policy meeting less likely.

Analysts now expect policymakers to keep rates unchanged while they assess the economic outlook.

Eurozone manufacturing activity meanwhile continued to expand in June, although the pace eased slightly.

The S&P Global manufacturing PMI slipped to 51.4 from 51.6 in May, marking a fifth consecutive month of growth.

Output rose to a two-month high, supported by a modest improvement in demand, although export orders weakened for a second month.

Production increased for the sixth month in a row, rounding off the strongest quarter for eurozone manufacturing since early 2022.

Most countries recorded growth, apart from Spain and France, which saw no expansion.

Supply conditions remained difficult because of disruption linked to the Iran war, although delivery times showed early signs of improvement.

Cost pressures eased, with input price inflation falling to its lowest level since March, helped by lower oil prices.

Output charge inflation also cooled to a three-month low, while employment continued to decline at a slower pace.

Business confidence rose to a four-month high, although expectations remained slightly below average.

Chris Williamson, chief business economist at S&P Global, said the rise in manufacturing output added to signs of resilience in the eurozone economy and would help offset the recent decline in services.

In the UK, manufacturing activity grew less than initially estimated in June.

The S&P Global manufacturing PMI came in at 52.5, down from the preliminary estimate of 53.1 and below May's 53.9, which had been the strongest reading since May 2022.

S&P said the sector's upturn since the end of last year was showing signs of losing momentum.

UK house prices were meanwhile flat in June, according to lender Nationwide, as cautious consumer sentiment weighed on the market.

Prices rose 2.2% year-on-year but were broadly unchanged on the month after a 0.6% decline in May.

The average house price stood at £277,484.

Galderma falls, defence plays in the green

In equity markets, Galderma Group fell 2.75% after the Swiss skincare specialist failed to secure US regulatory approval for its latest product to rival AbbVie's Botox.

Aerospace and defence stocks gained as investors responded to updated European manufacturing surveys and heightened tensions in the Gulf.

Saab rose 3.32%, while Rheinmetall advanced 6.07%.

Reporting by Josh White for Sharecast.com.