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European stock markets retreated Thursday, mirroring Wall Street’s sharp selloff as investors grew increasingly uneasy about the deepening U.S. fiscal deficit and the fading prospects for a resolution to the Russia-Ukraine conflict.
At 03:05 ET (07:05 GMT), the DAX index in Germany fell 0.4%, France’s CAC 40 slipped 0.4%, and the FTSE 100 in the U.K. declined 0.3%, as risk appetite weakened across the board.
U.S. Budget Concerns Spill Into Europe
The downbeat tone in European trading followed the fallout from the U.S., where the House of Representatives is preparing to vote on a controversial tax-cut and spending bill. The legislation would extend key parts of the 2017 Trump tax cuts and is projected by the Congressional Budget Office to add $3.8 trillion to the national debt over the next decade, pushing the total past $36 trillion.
This fiscal trajectory was a core reason behind Moody’s recent downgrade of the U.S. credit rating, adding to concerns that America’s growing debt load could spark long-term inflationary and economic risks.
JPMorgan CEO Jamie Dimon warned on Thursday that stagflation — a toxic mix of stagnation and inflation — could hit the U.S. economy amid mounting pressure from fiscal imbalances and geopolitical instability.
Ukraine Peace Prospects Fade
Adding to the risk-off sentiment, reports emerged that hopes for a near-term Ukraine-Russia ceasefire are diminishing. The Wall Street Journal reported that President Donald Trump told European leaders in a private call that Vladimir Putin sees no reason to stop the war, believing that Russia has the upper hand.
The report marks a stark departure from Trump’s earlier statements, in which he expressed optimism about peace prospects. The lack of progress is expected to fuel further geopolitical tensions in Europe and complicate ongoing diplomatic efforts.
Eurozone Business Surveys, Corporate Updates
Attention now turns to key flash PMI surveys for May, with data on eurozone manufacturing and services activity due Thursday. Economists expect relatively flat readings compared to April, amid global trade uncertainty and muted demand.
On the corporate front:
- EasyJet reported a £394 million pre-tax loss for the six months to March 31, an improvement year-on-year when adjusted for Easter timing.
- BT Group posted a 25% rise in free cash flow to £1.6 billion, allowing it to raise its dividend despite softer revenues and handset sales.
- Generali saw an 8.9% increase in operating profit, thanks to robust growth in its property and casualty division.
- Nestlé CEO Laurent Freixe signaled a strategic shift away from health supplements to refocus on core food and beverage segments, telling the Financial Times that recent diversification “weakened the fabric of the organisation.”
Oil Slides on Inventory Surprise, Nuclear Talks
In commodities, crude oil prices dropped sharply Thursday following a surprise build in U.S. inventories and renewed uncertainty surrounding U.S.-Iran nuclear negotiations.
- Brent crude fell 1.7% to $63.78 a barrel.
- WTI crude slipped 1.7% to $60.51 a barrel.
The U.S. Energy Information Administration (EIA) reported a 1.3 million-barrel increase in stockpiles, versus expectations for a drawdown, raising fresh concerns about U.S. demand levels.
Oil prices were also pressured by news that nuclear talks between Washington and Tehran will resume on Friday in Rome. Earlier this week, prices had rallied following a CNN report suggesting Israel is preparing for a military strike on Iranian nuclear facilities, which could severely impact regional oil flows.
With fiscal risks mounting in the U.S., geopolitical pressures intensifying, and oil markets whipsawed by both diplomacy and potential conflict, European investors face a challenging near-term outlook. All eyes are now on the U.S. House vote and Friday’s eurozone PMI data for clues on market direction.
