Euro Stocks Knocked Lower Midweek
Iran War Impact
European stocks have come under fresh selling pressure today as traders react to a fresh escalation in the US/Israel conflict with Iran as well as some hawkish ECB commentary this week. On the war front, news of Iran attacking ships in the Strait of Hormuz and a consequent counter-attack from the US (16 Iranian mine-laying ships destroyed), the prospect of a timely end to the war looks weaker again today. Trump had earlier this week signalled that the US operation there could end soon. However, with attacks from both sides seemingly growing in scale, such an end appears unlikely. While this view remains, economic risks from the war continue to pose a threat to the European and global economies, keeping asset prices capped.
Hawkish ECB Commentary
Alongside the impact of war in the Middle East, asset prices are also responding to some hawkish ECB commentary this week. Speaking yesterday, ECB head Lagarde sought to reassure markets that the ECB is economy in a stronger place than 2022 and better positioned to absorb energy price shocks. However, she also warned that the bank would not allow the inflation increases seen during that period (fallout from Russia-Ukraine war), adding some hawkish risk. This hawkish sentiment was then amplified by ECB’s Peter Kazimir who warned that a rate hike could be seen on the back of the Iran conflict. Traders are now pricing in at least 25bps of tightening in the next six months with stock prices vulnerable to a fresh push lower on any hawkish repricing of that outlook.
Technical Views
DAX
The breakdown below the rising trend line from 2025 lows saw price testing key support at the 23,062.10 level. This area is holding for now though momentum studies are bearish here, highlighting downside risks.
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