Europe close: Stocks weaker on geopolitical concerns

European shares fell on Thursday, with investor sentiment dampened by escalating tensions in the Middle East.

Israel’s ongoing attacks on Lebanon heightened fears of a broader regional conflict, driving risk-averse trading across the continent.

The pan-European Stoxx 600 index dropped 1%.

France's CAC 40 led losses, falling 1.32% to 7,477.78, while Germany's DAX remained flat, closing at 18,992.61.

In the UK, the FTSE 100 edged down 0.1% to 8,282.52.

On the currency front, the euro was last up 0.88% on sterling to trade at 83.98p, as it weakened 0.25% against the dollar, trading at $1.1017.

“Mainland European indices are leading the way lower in a session that follows on from an Asian session that finally saw the surge in Hong Kong shares come to a halt,” said Johhua Mahony at Scope Markets earlier.

“While September ended with record highs for the German DAX, we are seeing increased jitters come into play across European and US equities given the geopolitical and earnings risks that lay ahead.

“Coming on a day that has seen weakness across much of the commodities space, the continued rise of crude does continue to highlight the potential impending rebound as the risk of a wider Middle East emerges alongside a burgeoning Chinese recovery story.”

Eurozone economy showing signs of strain

In economic news, the eurozone economy showed signs of strain in September, according to fresh data released earlier.

The HCOB eurozone composite PMI, a key indicator of economic health, fell to 49.6 from August's 51.0, marking the first contraction since February.

While the final reading was slightly better than the flash estimate of 48.9, it still reflected a slowdown, particularly in the services sector, which saw its PMI fall to 51.4, a seven-month low.

The manufacturing sector continued to struggle, with its PMI slipping further to 45.0.

Major economies like Germany, France, and Italy reported contractions, with Germany's composite PMI at 47.5, France at 48.6, and Italy at 49.7.

Spain was the exception, posting a robust PMI of 56.3, a four-month high.

“At first glance, the services sector appears to be holding up fairly well,” said Cyrus de la Rubia, chief economist at Hamburg Commercial Bank.

“But when you dig a little deeper and look at individual countries, the picture is not as rosy, except for Spain.

“The situation in the service sector in the Eurozone will continue to deteriorate - this is indicated by the decline in new business.”

Elsewhere, business activity in the UK slowed to a three-month low in September, as reflected in the S&P Global services PMI, which dropped to 52.4 from 53.7 in August.

Despite the slowdown, the index remained above the 50.0 mark, indicating continued expansion.

On a positive note, inflation in the services sector eased, with prices charged inflation reaching its lowest point since February 2021.

“The September PMI surveys suggest that the UK economy is still on a positive trajectory, with improving order books accompanied by cooling inflationary pressures,” said Tim Moore, economics director at S&P Global Market Intelligence.

“UK service providers indicated a moderate expansion of activity in September, fuelled by resilient business and consumer spending.

“However, the post-election rebound lost some momentum as output, new work and employment all increased at the slowest pace for three months.”

Across the Atlantic, unemployment claims in the US rose by 6,000 to 225,000 in the week ended 28 September, surpassing expectations.

The uptick in claims supported speculation that the Federal Reserve may cut interest rates in upcoming meetings.

Continuing claims fell slightly to 1.82 million, and the four-week moving average for initial claims declined to 224,250, suggesting some stability amid the rise in new claims.

Manufacturers and luxury brands fall, energy plays in the green

On Europe’s equity markets, SAP dropped 1.45% after reports that US prosecutors were expanding an investigation into potential price-fixing by the German software giant.

Manufacturers were broadly weaker across the region, with Swiss firm OC Oerlikon plunging 8.86%.

Other significant losses included Spectris, down 4.05%, Stellantis, which fell 4%, and RS Group, declining 3.75%.

Luxury brands also struggled amid ongoing concerns over the slowing Chinese economy.

Burberry Group dropped 3.93%, Remy Cointreau slid 3.89%, and Davide Campari fell 2.97%.

On the upside, Tesco shares rose 2.48% after the UK supermarket chain raised its annual guidance, supported by strong interim results.

Energy stocks benefited from a surge in crude prices, with Brent futures rising over 4% by the end of the day.

Tullow Oil led the gains in the sector, rising 3.69%, followed by SBM Offshore, up 2.03%, and TotalEnergies and Repsol, which gained 1.45% and 1.42%, respectively.

Reporting by Josh White for Sharecast.com.