European Stocks Fall as Iran War Sparks Back-to-Back Weekly Loss

European stocks whipsawed on Friday, ultimately ending the week lower, as oil prices moved back above $100 a barrel and traders reduced risk ahead of the weekend.

The Stoxx Europe 600 closed 0.5% lower, notching the index’s first back-to-back weekly declines this year. Energy and utilities shone, rising by more than 1%, while energy-intensive cyclicals such as miners and industrials underperformed.

Stocks had earlier risen on a report that several European nations are in talks with Iran regarding safe passage of their ships through the Strait of Hormuz, but the gains soon faded as another news report said the Pentagon is moving additional Marines and warships to the Middle East.

Meanwhile, Iran stepped up its attacks on the Strait of Hormuz, pushing oil back above $100 and raising fears of a further escalation in the war over the weekend. As an earlier decline in bond yields reversed, European financials and real estate sectors ceded modest intra-day gains and closed lower.

“The direction of financial markets implies that investors are beginning to accept this situation may not be wrapped up quickly,” says Dan Coatsworth, head of markets at AJ Bell.

“We’re starting to get companies quantify the potential impact of the Middle East events on their earnings and that could ramp up next week once they’ve had time to look at forward orders and run the numbers on what a $100 oil price could mean for their business.”

Other big movers included BE Semiconductor Industries NV which surged to an all time high after Reuters reported the semiconductor equipment firm is fielding takeover interest. Zalando rose following an upgrade from Bernstein. While laggards included Vivendi SE which fell after revenue missed forecasts, and housebuilder Berkeley Group Holdings Plc which declined after warning the conflict was “weighing heavily on risk sentiment.”

Here’s what other market participants had to say:

Peter McLean, Head of Multi-Asset Portfolio Solutions at Stonehage Fleming Investment Management:

Looking ahead, markets are likely to continue reflecting elevated uncertainty and energy disruption, and investors should be braced for more volatility. Focusing on long term investment objectives and disciplines remain critical.

Benoit Peloille, Chief investment officer at Natixis Wealth Management:

“We are now in the phase where investors are looking into possible policy responses. If the conflict lasts much longer, there will also be some kind of response from central banks, even if we’re not there yet. We don’t think the conflict will last that much longer but it may already have a palpable negative impact on economic growth inflation.”

Mathias Heim, Chief investment officer at BelleCapital:

Given the spike in equity market volatility and a more contained uptick in high yield credit spreads, both in Europe and the US, I think we are past a significant portion of deleveraging in risky assets. Historically, this is the time when investors should start to focus on what could improve down the road.

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