European Markets Reel Amid Middle East Conflict Fears

European shares fell sharply as the European Central Bank warned that the ongoing Middle East conflict could exacerbate inflation. The remarks emphasize the market's sensitivity to geopolitical events, with surging oil prices affecting European economies. Interest rate expectations have shifted significantly as investors brace for potential hikes.

On Thursday, European shares hit their lowest level since December following the European Central Bank's warning that the Middle East conflict may worsen inflationary pressures.

The ECB's comments were its first during the ongoing conflict, highlighting how European markets are vulnerable to geopolitical instability, especially concerning oil prices and supply issues. The STOXX 600 saw a significant decline, closing 2.4% lower at 583.73 points, effectively wiping out the week's previous gains.

Concerns over energy prices are promoting speculation of potential interest rate hikes, despite previous expectations of steady rates through 2026. The Bank of England and the U.S. Federal Reserve also maintained current rates but expressed caution amid rising inflation and uncertainty.

(With inputs from agencies.)