Europe close: Stocks slide alongside oil prices
By Josh White
Date: Thursday 07 May 2026
(Sharecast News) - European shares closed lower on Thursday as investors reassessed hopes for a peace deal between Iran and the US, after conflicting messages from Tehran and Washington tempered the previous session's optimism.
The pan-European Stoxx 600 fell 1.02% to 616.88.
Germany's DAX declined 0.99% to 24,671.54, France's CAC 40 lost 1.17% to 8,202.08, and London's FTSE 100 dropped 1.55% to 10,276.95.
Oil prices also fell, with Brent crude futures last down 2.75% on ICE at $98.49 per barrel, and the NYMEX quote for West Texas Intermediate 2.85% lower at $92.37.
Tehran and Washington were evaluating proposals to end the conflict, which began on 27 February and had sent shares sharply higher on Wednesday while pushing crude prices lower.
However, optimism faded after US president Donald Trump said a deal had not been finalised and threatened to resume military strikes if Iran did not comply.
"If they don't agree, the bombing starts, and it will be, sadly, at a much higher level and intensity than it was before," Trump wrote on social media, while also saying talks were "very good" and that a deal was "very possible".
Iranian state media reported that officials were reviewing the US proposal and considering a response through Pakistani mediators.
Ebrahim Rezaei, spokesperson for the Iranian parliament's national security and foreign policy commission, said the proposal was merely an "American wish list" and "not a reality".
Chris Beauchamp, chief market analyst at IG, said: "While the tech-driven surge has continued, we are once again seeing a divergence between the US and everyone else.
"Earnings from AMD and TSMC have reinforced the narrative on AI demand, but for Europe that offers less comfort given the smaller weighting of tech across the continent.
"Faced with ongoing supply disruptions, the US outlook continues to look rosier than that in Europe."
Patrick Munnelly, market strategy partner at TickMill, said London's FTSE 100 "traded lower on Thursday, as the index struggled to extend the prior US-Iran deal-hopes rally and instead ran into a more difficult mix of weaker oil majors, a stronger pound, political uncertainty and selective earnings reactions.
"The broader global backdrop was still more constructive than earlier in the week, with investors encouraged by signs that the U.S.-Iran conflict could be moving toward a resolution.
"But for the FTSE specifically, that peace optimism had mixed effects: it supported global risk appetite and reduced inflation tail risks while also pushing oil prices below 100 and removing support from the index's heavyweight energy names."
Euro area construction activity contracts further
Economic data showed mounting pressure on activity.
The S&P Global eurozone construction PMI fell to 41.7 in April from 44.6 in March, marking the fastest contraction since August 2024 and remaining well below the 50 mark separating growth from contraction.
New business volumes fell at the sharpest rate in almost 18 months, with particularly weak orders in France and Germany.
Commercial activity posted its steepest decline since May 2020, while residential and civil engineering activity also weakened.
Inflation pressures in the sector intensified, with input price inflation rising to its highest level since October 2022.
Usamah Bhatti, economist at S&P Global Market Intelligence, said the start of the second quarter had brought "a sharp intensification of price pressures", largely because of rising raw material costs linked to the Middle East war.
Separate Eurostat data showed eurozone retail sales volumes fell 0.1% in March from February, a smaller decline than the 0.3% expected, while sales across the wider European Union rose 0.3%.
German factory orders were stronger, rising 5% month-on-month in March and 6.3% year-on-year, according to Destatis.
Analysts had expected monthly growth of 1%.
Excluding large-scale orders, new orders rose 5.1% to the highest level since February 2023, with electrical equipment up 21.5% and electronic and optical products up 14.4%.
Foreign orders increased 5.6%, including a 10.1% jump in orders from the eurozone, while domestic orders rose 4%.
In the UK, construction output recorded its steepest decline since November 2025 as higher input prices linked to the Middle East conflict weighed on activity.
The S&P Global construction PMI fell to 39.7 in April from 45.6 in March, the weakest reading for five months.
Civil engineering saw the sharpest fall, followed by housebuilding, while new business declined at the fastest pace since November 2025.
Tim Moore, economics director at S&P Global Market Intelligence, said input cost inflation had accelerated rapidly across the UK construction sector.
"Aside from the post-pandemic surge in input prices from early-2021 to mid-2022, the latest rise in purchasing costs was the steepest in three decades of data collection," he said.
Moore added that subdued demand, fragile investment sentiment, elevated borrowing costs and uncertainty over the Middle East conflict were weighing on confidence.
Sweden's Riksbank left its key interest rate unchanged at 1.75%, as expected, while it assessed the impact of the Iran war on inflation.
The central bank said inflation was currently below target and recent outcomes had been clearly lower than its March forecast, giving it scope to wait for a clearer picture of the effects of the war and related supply shocks.
However, it said a broad and persistent inflation upturn caused by the conflict would require a rate rise.
Norges Bank surprised markets by raising its key deposit rate to 4.25% from 4.0%, pointing to "substantial uncertainty" around the outlook and inflation that remained too high.
Governor Ida Wolden Bache said the committee judged it appropriate to raise rates because inflation had run above target for several years.
ING, which had expected the hike, said a hold was now more likely in June, although risks remained on the hawkish side.
Zealand Pharma clings to most gains, Campari in the red
In equity markets, Zealand Pharma rose 9.45%, giving back some earlier gains but still closing sharply higher despite reporting a first-quarter loss.
Davide Campari Milano slumped 14.45% after its full-year guidance underwhelmed investors.
The Italian drinks group said it expected underlying sales growth of around 3%, in line with the growth achieved in 2025.
Lanxess fell 5.59% after the German specialty chemicals group's first-quarter results.
Munnelly said the clearest drag on London had come from the oil majors, with Shell and BP weaker as crude prices retreated.
"That reaction shows how quickly the market has shifted from rewarding oil exposure to questioning whether the peak in geopolitical risk premia has passed," he said.
"If a US-Iran deal reduces the probability of a prolonged Middle East supply shock, then the earnings tailwind for oil majors becomes less powerful, even if the companies themselves continue to generate strong cash flow.
"For the FTSE 100, that matters because energy has been one of the index's main stabilisers during recent volatility."
Reporting by Josh White for Sharecast.com.
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