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European stocks traded lower on Thursday as investors cautiously monitored the escalating conflict in the Middle East, which has now entered its sixth day and continues to fuel uncertainty across global markets.
By 03:02 ET (08:02 GMT), Germany’s DAX fell 0.4%, France’s CAC 40 declined 0.4%, and the UK’s FTSE 100 slipped 0.1%.
Middle East conflict widens
The conflict began over the weekend when the United States and Israel launched missile strikes on Iranian targets. Since then, hostilities have intensified and spread beyond the immediate region.
On Wednesday, a U.S. submarine sank an Iranian warship near Sri Lanka, while NATO air defenses intercepted and destroyed an Iranian ballistic missile fired toward Turkey, highlighting the widening scope of the confrontation.
There are few indications that the fighting will end soon. The U.S. Senate rejected a motion aimed at halting the air campaign, a proposal that would have required congressional authorization for further military action.
Meanwhile, Mojtaba Khamenei, the son of Iran’s slain Supreme Leader Ayatollah Ali Khamenei, has emerged as a leading candidate to succeed him, according to the White House, suggesting Tehran may not be prepared to ease tensions.
International Monetary Fund Managing Director Kristalina Georgieva warned that the conflict is testing “global economic resilience,” as markets grapple with the broader economic consequences of the escalating crisis.
Energy-driven inflation fears weigh on sentiment
Rising energy prices have become a growing concern for European markets. The region is heavily dependent on imported energy, and a prolonged surge in oil and gas prices could push inflation higher.
Such pressures could force the European Central Bank to consider tightening monetary policy further.
However, Francois Villeroy de Galhau, Governor of the Bank of France and an ECB policymaker, said Thursday that he currently sees no reason to raise interest rates.
He noted that the Middle East conflict could lift inflation while simultaneously weakening economic growth, though the overall impact will depend largely on how long the conflict persists.
Eurozone retail sales data ahead
Investors are also awaiting Eurozone retail sales data, due later in the session.
Economists expect January retail sales to rise 0.3% month-on-month, representing an annual increase of 1.7%.
Earlier Thursday, China set its 2026 economic growth target between 4.5% and 5%, slightly below last year’s 5% expansion and the country’s lowest growth target since 1991, underscoring broader concerns about global economic momentum.
Corporate earnings remain in focus
Alongside geopolitical developments, investors continued to digest a fresh batch of corporate earnings.
- Reckitt Benckiser reported stronger-than-expected fourth-quarter like-for-like sales growth, driven by robust demand in emerging markets, and forecast core business growth of 4%–5% in 2026.
- Deutsche Post projected higher operating profit for 2026, broadly matching market expectations despite a more uncertain geopolitical backdrop.
- Zurich Insurance posted its highest annual profit on record in 2025, supported by strong performance in its U.S. operations and a relatively quiet year for natural catastrophes.
- Galderma more than doubled its peak sales target for the skin treatment Nemluvio to over $4 billion, after annual net sales exceeded $5 billion for the first time.
- LEG Immobilien reported full-year 2025 results above expectations on key metrics and reaffirmed its 2026 outlook, though rising vacancy rates and a partial share-based dividend tempered investor enthusiasm.
With geopolitical tensions dominating headlines and energy prices climbing, European markets remain cautious as investors weigh the economic consequences of the expanding conflict.
