Europe close: Stocks sink, oil jumps on reports of imminent Iran strike

Stocks dropped into the red in late-afternoon trade on Tuesday while oil prices surged on the back of fears that a retaliation by Iran on Israel is imminent.

Brent crude was nearly 4% higher at $74.40 a barrel by the close of play, while global equity markets gave up earlier gains on reports that Iran was preparing to launch a ballistic missile attack against Israel.

An unnamed White House official was quoted as saying that the US government had "indications" that an attack was imminent, and that the US were "actively supporting defensive preparations to defend Israel".

Tensions were already high after Israeli troops crossed the border in southern Lebanon and continued shelling areas nearby along with airstrikes on the capital, Beirut. The invasion is an escalation after the assassination of Hezbollah leader Hassan Nasrallah on Friday.

The Stoxx 600, which earlier had risen following data showing a drop in eurozone inflation, swung sharply lower to close with losses of 0.44%, with most major indices across Europe finishing lower.

''A relatively quiet session turned into full risk-off mode amid unconfirmed threats of an imminent missile attack by Iran on Israel", said Axel Rudolph, senior technical analyst at IG.

Eurozone inflation drops

In economic news, eurozone inflation fell below the European Central Bank's 2% target for the first time since 2021, boosting hopes of further interest rate cuts in the single currency bloc. A flash estimate from European Union statistics body Eurostat said annual inflation across the euro area was 1.8% in September 2024, down from 2.2% in August and its lowest since April 2021.

"We think that the ECB is slightly more likely than not to proceed with a rate cut at the October meeting. But with services inflation remaining stubbornly high, the decision to cut or stay put is on a knife edge," said Rory Fennessy, senior economist at Oxford Economics.

However, the state of manufacturing in the eurozone remained a concern as a survey show the sector's downturn deepened in September with activity contracting at its sharpest rate this year.

Final estimates from S&P Global and HCOB confirmed the manufacturing purchasing managers' index (PMI) showed a print of 45 for last month. While the PMI was revised slightly higher than the initial estimate of 44.8 released last week, this was still down from 45.8 over the preceding three months and the worst level since December 2023.

Market movers

Oil stocks were following crude prices higher, with BP, Shell and TotalEnergies all higher. The French outfit was also rising after announcing on Tuesday that it is investing $10.5bn into the GranMorgu offshore oil field in Suriname, said to hold recoverable reserves estimated at over 750 million barrels.

Shares in Covestro jumped 4% as Abu Dhabi state oil giant ADNOC said it had agreed to buy the German chemicals producer for €14.7bn.

Greggs fell 5% despite the UK bakery chain holding guidance. However, news that top-line growth was slowing against tougher comparable periods last year did not impress investors.