Europe close: Stoxx drops to three-month low as geopolitical tensions rise

European stocks finished at a fresh three-month low on Tuesday as market sentiment was shaken by concerns of a significant escalation in conflict in the Russia-Ukraine war.

The Stoxx 600 index finished 0.45% lower at 500.60 – its lowest since 12 August – with benchmarks in Frankfurt, Paris and Madrid falling 0.7% and Milan's FTSE MIB dropping 1.3%.

Safe-haven assets worldwide such as gold and the US dollar were in demand while banking stocks fell as investors scaled back their appetite for risk after the Kremlin issued a "revised" nuclear doctrine in response to US President Joe Biden's decision to lift a ban on Ukraine using longer range missiles against Russia itself.

The so-called 'Fear Index' – the CBOE Volatility Index or VIX – was 2.4% higher on the day.

"Risk assets like stocks are not likely to enjoy a good day when the word ‘nuclear’ is being bandied around, and today was no exception. The Ukrainian use of US missiles on targets inside Russia caught European markets particularly hard," said Chris Beauchamp, chief market analyst at IG.

In economic news, inflation in the eurozone rebounded sharply as expected in October, rising from a three-year low and back in line with the European Central Bank's target.

Data from Eurostat on Tuesday showed that the annual change in consumer prices was 2.0% last month, with the rate of inflation jumping from 1.7% in September – its lowest level since April 2021. This was in line with the consensus forecast.

Market movers

Banking stocks across the continent broadly fell, including Crédit Agricole, Société Générale, HSBC, Barclays, Banco Santander and Deutsche Bank.

Shares in Thyssenkrupp surged more than 20% after the German industrial engineer and steelmaker narrowed full-year losses. Despite a €1bn impairment on its struggling steel division, the firm was still able to cut its net loss to €1.4bn from €2bn. Despite the challenges, Thyssenkrupp said it expected to return to profitability in the next financial year, forecasting net income between €100m and €500m.

Swiss giant Nestlé finished 2% lower after unveiling an ambitious cost-cutting initiative and reducing its profit outlook, as new chief executive Laurent Freixe charted a turnaround strategy for the world’s largest food company.

Imperial Brands gained 3% in London as the cigarette and vape maker reported higher annual profits and cut losses at its new products division, boosted by a sharp jump in revenues.

Also in London, Diploma slumped 8% after underwhelming with a 20% rise in annual profits, while Big Yellow dropped 5% after reporting a slight EPS reduction in its first half as higher operating costs weighed on the bottom line.

Aeroports de Paris rose after Stifel upgraded the stock to 'buy' from 'hold'.