European shares fell on Friday, with the pan-European STOXX 600 index declining 0.5% to 611.04 points, on track to record a weekly loss of around 2.5%, snapping a four-week winning streak. The decline was driven by investor caution amid limited progress toward resolving the Middle East conflict.
Despite some diplomatic developments, including a three-week ceasefire extension between Israel and Lebanon brokered by US President Donald Trump, the broader conflict has now stretched to around eight weeks. Trump stated he was willing to wait for "the best deal" to end the conflict with Iran, but Washington and Tehran remain at an impasse.
Benchmark Brent crude remained above $100 per barrel, with the Strait of Hormuz effectively shut, raising concerns about global energy supply disruptions and adding pressure on inflation expectations. Elevated oil prices weighed on market sentiment, as investors assessed the potential economic impact of prolonged supply constraints.
Most sectors traded in negative territory, with aerospace and defence stocks leading losses at 2.4%. The technology sector was the only major gainer, rising 0.7%, driven by a sharp rally in SAP shares (up 5.5%) after strong first-quarter earnings. Germany's DAX index outperformed peers, edging up 0.1%.
European corporate earnings have shown resilience, but the outlook remains uncertain due to escalating geopolitical risks. The euro remained relatively stable against major currencies, reflecting a wait-and-watch approach as traders balanced geopolitical risks with expectations around eurozone economic resilience.
