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European shares traded lower on Friday as escalating tensions between the United States and Iran pushed oil prices higher and weakened hopes for a near-term diplomatic resolution to the conflict.
The pan-European STOXX Europe 600 fell 0.8% to 611.69 points as of 0703 GMT.
Major regional indexes also moved lower, with Germany’s DAX down 0.9% and London’s FTSE 100 slipping 0.5%.
Geopolitical tensions pressure European markets
Investor sentiment remained fragile after US President Donald Trump said the ceasefire remained in effect despite clashes involving forces in the Gulf region.
Washington is still awaiting Tehran’s response to its proposal aimed at ending the conflict.
The latest developments added to uncertainty across European markets, which have remained highly sensitive to geopolitical headlines in recent weeks.
Rising oil prices further intensified concerns over inflation and economic growth in the region, given Europe’s dependence on energy imports.
Financial markets are currently pricing in three or more interest rate hikes from the European Central Bank over the next 12 months.
Trump tariff warning adds to investor concerns
Market sentiment was also affected by Trump’s warning that the European Union could face “much higher” tariffs if trade deal commitments are not implemented by July 4.
The comments added another layer of uncertainty for investors already dealing with geopolitical risks and inflation concerns.
Traders continued to monitor both the Middle East situation and trade developments between Washington and Brussels for further market direction.
IAG falls on higher jet fuel costs
Among individual stocks, shares of International Airlines Group, the parent company of British Airways, dropped 5.2% after the company forecast lower annual profit than previously expected.
The airline group cited soaring jet fuel costs as a key reason behind the weaker outlook.
Rising fuel prices have become a major concern for airlines globally as geopolitical tensions continue to disrupt energy markets.
Amadeus rises after earnings beat
Meanwhile, shares of Amadeus IT Group rose 3.7% after the Spanish travel technology company reported quarterly core earnings above market expectations.
The company also maintained its existing guidance, which appeared to reassure investors despite broader market weakness.
ECB pushes for deeper financial integration
Meanwhile, a report released by the European Central Bank on Thursday said the euro zone has made steady progress in financial integration in recent years.
However, the report noted that equity markets across the bloc remain fragmented and continue to lag improvements seen in banking and debt markets.
The ECB and the European Commission are pushing for deeper integration and the creation of a single market, beginning with financial services.
Policymakers believe stronger financial integration could help direct more household savings into investments and eventually support stronger economic growth across the euro zone.
Despite those longer-term efforts, investors remained focused on immediate geopolitical risks and rising energy prices, which continued to weigh heavily on European equities at the end of the trading week.
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