The CAC 40 and FTSE 250 indices have officially entered correction territory, each falling approximately 10% from their yearly highs as geopolitical tensions and monetary policy concerns weigh heavily on European markets.
The CAC 40 Index, France's benchmark, has dropped from a high of €8,645 in February to €7,807, its lowest level since September of last year. This decline mirrors a broader sell-off in European equities, largely attributed to the escalating conflict in Iran. Analysts warn that European companies are particularly vulnerable due to the bloc's dependence on Middle Eastern energy, a fact underscored by European gas prices surging by triple-digit percentages since the war began. This is expected to drive up operational costs for many index constituents.
Compounding the pressure, the European Central Bank (ECB) has signaled potential interest rate hikes later this year to combat persistent inflation, contradicting earlier analyst predictions from banks like Barclays and Goldman Sachs for rate cuts. This hawkish shift has pushed French 10-year bond yields from 3.219% to 3.62% this month. Specific companies have been hit hard: Compagnie de Saint-Gobain is down over 23% in 30 days, Pernod Ricard has fallen 23% amid slowing sales in China and the US, and EssilorLuxottica and Accor have dropped 20% and 19%, respectively.
Across the Channel, the UK's FTSE 250 mid-cap index has fallen to £21,500, its lowest point since November 2025. The Iran war's impact on energy prices is a primary driver, with UK oil and gas prices rising over 50% since February. A recent Iranian attack on a major Qatari gas plant has exacerbated supply fears. In response, the Bank of England (BoE) delivered a hawkish statement, leaving rates unchanged but hinting at two potential hikes this year, as it grapples with stagflation—inflation stubbornly above 3.8% and stagnant growth.
The sell-off has been severe for many constituents. Housebuilder Vistry Group has plummeted 50% in 30 days, Wizz Air is down 38% due to soaring jet fuel costs, and Aston Martin has crashed 37%, bringing its total decline from all-time highs to over 90%. Financial firm Close Brothers fell 28% following short-seller concerns.
Technical analysis for both indices paints a bearish picture, with prices breaking below key moving averages and support levels. The CAC 40's Relative Strength Index (RSI) has fallen from 74 to 32, while the FTSE 250 has broken below its 23.6% Fibonacci retracement level. Analysts suggest the indices may face further pressure until there are signs of the conflict de-escalating.
