European shares declined on Wednesday as investors awaited the Federal Reserve’s monetary policy decision, with ongoing tensions in the Middle East adding to market uncertainty.
The pan-European STOXX 600 index closed 0.4% down, at a near one-month low.
The hostilities between Iran and Israel extended to a sixth day, with fears of a more direct U.S. involvement after President Donald Trump asked for Iran’s “unconditional surrender”.
However, Iranian Supreme Leader Ayatollah Ali Khamenei rejected Trump’s demand for surrender.
Defence stocks were among the biggest gainers, with the sector up 0.6%.
Traders also stayed away from risk assets ahead of the Federal Reserve’s policy meeting at 1800 GMT, where officials are widely expected to hold interest rates steady.
Investors will closely watch policymakers’ comments for signals on how the U.S. central bank plans to navigate an uncertain trade environment.
“Rising geopolitical and trade uncertainties mean the Fed’s growth and inflation forecasts may lack precision.”, said Ipek Ozkardeskaya, senior analyst at Swissquote Bank.
European shares slide as Israel-Iran conflict shows no sign of cooling
The Fed faces additional challenges from potential inflation risks stemming from the escalating Middle East crisis.
As the July 8 tariff-pause deadline approaches, many countries, including the EU are scrambling to strike a deal with Washington. European Commission President Ursula von der Leyen was still aiming to reach a deal by July 9.
The only formal deal signed was the finalization of the U.S.-UK agreement announced last month. Other major bourses indexes were largely mixed.
London’s FTSE 100 closed up 0.1% after data showed that British inflation eased as expected in May. Investors are now eyeing the Bank of England’s rate decision on Thursday.
“With services inflation still elevated… the BoE looks nailed on to keep rates unchanged,” said Ruth Gregory, deputy chief UK economist at Capital Economics.
Sweden’s central bank cut its key interest rate to 2.00% from 2.25% as expected. Still, Stockholm’s benchmark index dropped 0.1%.
The healthcare sector was the biggest drag on the benchmark index, weighed down by a 1% drop by heavyweight Novo Nordisk.
A U.S. judge upheld the U.S. Food and Drug Administration’s decision to remove the pharma giant’s blockbuster drugs Ozempic and Wegovy from the drug shortage list.
Barclays forecasts a year-end 2026 target of 620 for the STOXX 600, citing Germany’s stimulus measures and rate cuts as key drivers for this optimistic outlook.
French outsourcing firm TP dropped 13.6% to the bottom of STOXX 600 after announcing new medium-term targets.
Gerresheimer rose 6.3% after the German medical packaging maker said it was informed KPS Capital Partners was still in talks with Warburg Pincus on a potential joint takeover bid.
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