UPDATE 2-European shares hit three-week low as earnings, data and Iran conflict weigh

European equities are nearly 5% below pre-war levels, lagging U.S. peers and global markets, as the region's reliance on energy imports has intensified inflation pressures and weighed on sentiment. Data on Wednesday showed German inflation rose in April due to surging energy prices, while euro zone economic sentiment fell to a three-and-a-half-year low this month ⁠amid ​the Iran war.

European shares slid to a three-week low on Wednesday amid mixed corporate results and data pointing to the economic damage caused by the Iran war, with investors cautious ahead of ‌key global monetary policy decisions.

The pan-European STOXX 600 closed down 0.6% at 602.96 points. GSK and AstraZeneca fell 5.4% and 1.5%, respectively despite posting strong first-quarter earnings. Their declines dragged the healthcare index down 1.7%, making it the biggest drag on the STOXX 600.

"European companies are reporting okay numbers and some ‌of them are ahead of expectations, but the market is not really rewarding them for that (due to the) underlying macro headwinds," said Marija Veitmane, ‌head of equity research at State Street. European equities are nearly 5% below pre-war levels, lagging U.S. peers and global markets, as the region's reliance on energy imports has intensified inflation pressures and weighed on sentiment.

Data on Wednesday showed German inflation rose in April due to surging energy prices, while euro zone economic sentiment fell to a three-and-a-half-year low this month ⁠amid ​the Iran war. U.S. President Donald Trump said ⁠he was unhappy with Tehran's latest proposal to end the conflict, adding uncertainty over prospects for negotiations.

Most major regional bourses also fell. Germany's DAX closed lower for an eighth ⁠straight session, its longest losing streak since 2020. Wall Street slipped ahead of earnings from several U.S. Big Tech firms and a Federal Reserve policy decision, as investors looked ​for signs that heavy AI spending is translating into earnings growth.

ECB, EARNINGS DELUGE Focus now turns to the European Central Bank's ⁠meeting on Thursday, where policymakers are widely expected to keep rates on hold. Markets will scrutinise guidance as officials seek to curb inflation while managing weak growth.

"The U.S. has continued to ⁠show ​remarkable resilience .... Europe, on the other hand, has been showing weaker growth dynamics," said Daniela Hathorn, senior market analyst at Capital.com. Investors sifted through a wave of earnings to assess the war's impact on corporate Europe.

UBS gained 3.2% after the Swiss bank posted better-than-expected first-quarter net profit, ⁠while Deutsche Bank fell 1.8% after its results. The euro zone banks index slipped 0.3%. Adidas jumped 8.4% after the German sportswear group reported better-than-expected first-quarter ⁠operating profit.

Elsewhere, Pernod Ricard fell 3.1% ⁠after the French spirits maker ended merger talks with Jack Daniel's owner Brown-Forman. Finnish lift maker Kone slipped 3.3% after agreeing to buy German rival TK Elevator in a 29.4-billion-euro ($34.4 billion) deal. Thyssenkrupp, which owns a 16.2% stake ‌in TK Elevator, ‌surged nearly 10%.