European shares languish at Aug lows as hawkish central banks counter bond rebound

European equities continued their downward trend on Thursday, reaching their lowest levels since August 3, as fresh geopolitical tensions and hawkish central bank signals dampened market sentiment. The Stoxx Europe 600 Index slipped 0.1%, marking its seventh consecutive day of losses, the longest streak since September 2023. German equity index DAX declined 0.3%, France's CAC 40 fell 0.6%, and the London FTSE 100 remained unchanged.

Analysts from UBS advised investors to view these periods of volatility as an opportunity to reassess portfolio diversification and consider quality fixed income assets to bolster resilience. U.S. President Donald Trump warned of severe economic repercussions for any country aiding Iran, intensifying geopolitical risk in the Persian Gulf.

With tanker traffic at multi-week lows and Brent crude hovering near record highs, European traders remain concerned about potential cost-push inflation and the impact on supply chains. The U.S. Federal Reserve also surprised markets with hawkish minutes from their July policy meeting, signaling a possible further interest rate hike if inflation remains above their 2% target.

This, coupled with the Treasury's recent liquidity-buyback measures, contributed to a rise in U.S. yields, putting additional downward pressure on equities. Despite some individual company gains, such as Novonesis AS and Arcadis NV, the broader market remained under pressure from the mix of macroeconomic concerns and geopolitical risks.