Middle East Conflict Sparks Inflation Fears, Hits EU Equities

European equities suffered a third consecutive week of losses, marking their longest losing streak in nearly a year due to escalating tensions in the Middle East. The conflict has intensified inflation fears, leading investors to brace for potential interest-rate hikes.

The pan-European STOXX 600 fell 1.8% to 573.28, accumulating a 3.8% loss for the week. Strikes targeting Middle Eastern energy infrastructure have contributed to climbing oil prices, eroding hopes for stability in risk assets. Although the European Central Bank left policy rates unchanged, the institution is expected to consider hikes soon.

Broad market weakness was observed, with major sub-indices of the STOXX 600, including defence, utilities, and energy, declining significantly. Meanwhile, geopolitical developments continue to weigh heavily on market sentiment as Europe's dependency on Middle Eastern oil amplifies the impact of rising crude prices.