European shares slide to over-one-month lows as Brent breaches US$100

European equities plunged on Wednesday (Sep 9) to their lowest level in over a month as crude prices spiked above the critical US$100 per barrel threshold due to rising Middle East tensions, accentuating inflation worries and eroding risk appetite. The pan-European Stoxx 600 index fell 1.4% to 640.41 points, marking its lowest since late July.

Most regional stock exchanges also saw significant declines. Finland's blue chips, however, rose 0.8% to reach their highest level in nearly three months, with Fortum leading gains on the Stoxx 600 after signing a long-term power purchase agreement with Google. Fortum's stock jumped 15.8% following the deal.

Brent crude futures surged above US$100 per barrel for the first time since late July after Iran and the United States targeted tankers in the most intense series of shipping attacks since the war's inception, raising fears of additional disruptions to Middle East energy supplies. Energy stocks were the only sector with positive performance, up 0.3%, while all other major sectors slipped. The Euro Stoxx volatility index climbed 2.17 points to its highest level in a week.

Kiran Ganesh, managing director and global head of investment communications at UBS, explained that higher oil prices fuel higher inflation expectations, potentially triggering interest rate hikes and lifting bond yields. Consequently, oil has compounded the negative impact on equities over recent days. With volatility increasing, investors appear hesitant to take on additional risk prior to a series of central-bank decisions and economic data releases that could influence growth and borrowing cost expectations.

Euro zone government bond yields hit fresh multi-year peaks on the day before the European Central Bank meeting as traders priced in two interest rate hikes by late 2026 and a 3.1% rate by the end of 2027. Ganesh cautioned that the European Central Bank might overreact to the oil price surge, potentially causing further negative repercussions for the broader economy. Markets widely anticipate the ECB to raise rates on Thursday, and US inflation figures expected later in the week are also likely to sway trading.

Notable market movers included a 6.4% decline in Auto1 Group SE shares following the departure of Christian Wallentin as its CFO, and a 3.6% drop in Inditex, the owner of Zara, after the Spanish fast-fashion retailer reported weaker-than-expected second-quarter earnings.