Europe close: Stocks fall on renewed US-Iran hostilities
By Josh White
Date: Wednesday 03 Jun 2026
(Sharecast News) - European shares closed lower on Wednesday as renewed hostilities between the US and Iran and weaker global growth forecasts from the OECD weighed on investor sentiment.
The pan-European Stoxx 600 fell 0.54% to 621.96.
Germany's DAX dropped 1.24% to 24,811.63, France's CAC 40 declined 0.71% to 8,150.42, and London's FTSE 100 slipped 0.4% to 10,332.30.
In commodities, Brent crude futures were last up 1.6% on ICE at $97.54 per barrel, while the NYMEX quote for West Texas Intermediate gained 1.83% to $95.48.
Russ Mould, investment director at AJ Bell, said: "Markets continue to ebb and flow in step with Middle East developments."
"The lack of solid progress with peace talks has resulted in Brent crude oil moving back up in price, trading 1.8% higher at $97.76 per barrel," he added.
"That's weighed on European markets, although the FTSE 100 fared relatively better than its peers thanks to a large weighting towards oil and gas stocks.
"BP and Shell both traded higher as their earnings will benefit from oil's ascent, while their trading arms should be busy thanks to ongoing volatility in the commodity price."
Tensions in the Gulf rose after US forces fired a Hellfire missile to disable a tanker attempting to break through the American blockade of the Strait of Hormuz on Tuesday.
Washington later said it had attacked sites on Iran's Qeshm Island.
Iranian drones also hit Kuwait's international airport, causing "significant" building damage and injuring several people, according to officials.
Air traffic was suspended on Wednesday morning.
Neil Wilson, UK investor strategist at Saxo, said European stock markets retreated on Wednesday morning as oil rose for a third day after the US and Iran exchanged fire.
"There's not a great urgency to get a deal done, it seems, even if we still assume the extreme left tail risk has been cut off," he said.
"But the ceasefire is fraying so no surprise to see oil prices continue to press higher without as yet any sign of a resumption of full hostilities."
Investors were also unsettled by the OECD cutting its global growth forecast for 2026 to 2.8% from 3.4% last year.
The organisation warned that a prolonged closure of the Strait of Hormuz could reduce growth to 2.1% this year and 1.8% in 2027.
Mould said: "The OECD gave a stark reminder that a prolonged Iran war could lead to higher inflation and cause recession in some countries.
"Investors are fully aware of this risk but have so far taken the view that the conflict will be resolved soon - hence why markets haven't crashed."
Euro area private sector activity contracts less than thought
On the economic front, eurozone private sector activity contracted less than initially estimated in May, but still pointed to a deeper downturn than in April as price pressures increased.
S&P Global's final composite PMI came in at 48.5, above the preliminary estimate of 47.5 but down from 48.8 in April, marking the weakest reading in 18 months.
Wilson said the European Central Bank looked "assured to hike rates next week" after eurozone inflation rose to 3.2% because of the impact of the Iran war on energy prices.
The European Union also set out plans to reduce reliance on foreign technology providers, with proposals to strengthen semiconductor, cloud computing and artificial intelligence capacity.
European Commission president Ursula von der Leyen said the bloc could not afford to "depend on others for the technologies that keep our hospitals running, our energy grids stable and our services secure".
The plans included a Cloud and AI Development Act, a strengthened Chips Act and minimum energy-efficiency standards for data centres.
In the UK, the services sector contracted in May for the first time in more than a year.
The S&P Global UK services PMI fell to 49.3 from 52.7 in April, although the reading was better than forecasts for 47.9.
The composite PMI dropped to 49.7 from 52.6.
Tim Moore, economics director at S&P Global Market Intelligence, said companies had reported weaker domestic and overseas demand, with many citing the Middle East conflict as a drag on sales pipelines and business prospects.
UK consumer confidence improved in May, according to YouGov and Cebr, as perceptions of household finances became less negative.
The headline index rose to 104.9 from 102.4 in April, the biggest monthly increase since May 2021.
However, household finance measures remained below the 100 mark, indicating continued pressure.
Pushpin Singh, managing economist at Cebr, said the improvement followed two months of sharp falls but that underlying headwinds remained.
Wilson said tariffs were also "rearing their head again", after the Office of the US Trade Representative proposed new tariffs of at least 10% on imports from 60 trading partners, including Canada, Mexico, the EU, Taiwan and the UK, with 12.5% for several other major economies.
In the US, private sector employment rose by 122,000 in May, according to ADP, ahead of expectations for 110,000.
Service-sector employers added 114,000 jobs, while goods-producing firms added 8,000.
Nela Richardson, ADP's chief economist, said hiring was more broad-based than in recent years and that the labour market continued to show momentum.
US factory orders meanwhile rose 4.8% in April to $662.7bn, the fifth increase in six months, while shipments rose 1.0% to $641bn.
Unfilled orders increased for the 21st time in 22 months, rising 1.7% to $1.57trn.
B&M jumps, Akzo Nobel in the red after uninvited suitors pull out
In equity markets, B&M European Value Retail surged after reporting a smaller-than-expected fall in annual profits.
Group revenue rose 3.6% to £5.78bn, supported by growth in France, although UK like-for-like sales softened 0.1%.
Mould said expectations had been "so low for B&M after a string of profit warnings that they may as well have been underground".
"A set of results with a hint of encouragement was enough to fire the share price higher," he said.
"Profit and earnings plunged as costs soared, but there was nothing new in the numbers to spook investors."
Inditex also gained after first-quarter results met expectations.
The Zara owner reported a 5.8% rise in sales to €8.7bn and a 5.4% increase in net profit to €1.38bn.
Howden Joinery jumped after agreeing to buy the parent company of DIY Kitchens for £390m, giving the trade kitchen supplier direct access to non-trade consumers.
On the downside, Akzo Nobel plunged after Nippon Paint and Sherwin-Williams said they were no longer interested in pursuing a public offer for the Dulux owner.
Akzo Nobel had previously rejected their joint cash offer of €73 per share, saying it did not adequately reflect the company's value or long-term prospects.
Partners Group also fell after the Swiss private markets firm said it was restricting investor withdrawals from one of its private equity funds, echoing recent redemption pressures in US private credit.
Reporting by Josh White for Sharecast.com.
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