European equities traded cautiously on Wednesday, with the FTSE 100 giving up early gains as broader risk sentiment weakened, even as Wall Street maintained an upbeat tone.
The mixed session came as oil markets steadied, with Brent crude hovering around $95 a barrel.
Traders pointed to tentative optimism over potential renewed peace negotiations involving Iran as a factor tempering further upside in energy prices, though geopolitical risk premiums remained elevated.
In Paris, the CAC 40 also slipped, reflecting broader pressure across European luxury and cyclical stocks.
One of the sharpest moves came from French luxury group Hermès, whose shares fell 13% after the company reported a 6% decline in Middle East sales.
The update reignited concerns that conflict-related disruptions are beginning to weigh on high-end consumer demand in key growth regions.
In the UK housing sector, Barratt Redrow issued a cautious outlook, warning of rising costs and continued uncertainty amid an evolving geopolitical backdrop, adding to concerns about margins in an already subdued property market.
Elsewhere, consolidation in the financial services sector continued, with Standard Life Aberdeen confirming a £2 billion acquisition of Aegon UK, a deal expected to create a major UK pensions and retirement savings group.
Analysts said the session reflected a broader pattern of fragmented sentiment: resilient US equity performance on one side, and growing caution in Europe, where energy volatility, geopolitical uncertainty, and sector-specific earnings pressure continue to weigh on benchmarks.
Susannah Streeter, chief investment strategist, Wealth Club said: “The optimism that had been fired up on hopes that fresh talks could end the Iran conflict has begun to seep away. Stocks on Wall Street nudged fresh record levels as oil prices dipped back. But given the hurdles to cross, this could be interpreted as a dose of irrational exuberance. In Europe,Q there’s a lot more caution around as companies count the cost of the conflict.
The FTSE 100 has struggled to hold onto early gains while the CAC 40 in Paris is deep in the red, dragged down by luxury goods giants. Shares in Hermes, the Birkin bag maker, have slumped by 13% as the company warned of much weaker sales due to the Iran crisis. The Middle East was the fastest-growing region for Hermes this year, until the strikes began and sales fell off a cliff. Instead of bustling havens for shoppers, the malls in Dubai have been deserted by well-heeled tourists. Flight disruption from Middle Eastern hubs has also pushed down visitor numbers to boutiques in Britain, Switzerland, France and Italy. Plus, it seems even hyper-luxury brands are not immune to crushing confidence. Although the ultra-wealthy are more insulated from inflation shocks, shopping for a super expensive handbag may come across as more insensitive and less of a priority in wartime.
Barratt Redrow’s update shows just how far-reaching the repercussions of the war with Iran are set to be. Barratt has warned that building costs could rise significantly and has warned that the outlook for next year is highly uncertain. Suppliers look likely to pass on the higher costs of production, and construction sites are becoming so much more expensive to run. The construction industry is one of the most energy-hungry industries, with cement and steel needing intense heat in the manufacturing process.
With inflation set to rise and the Bank of England expected to increase rather than cut rates, it’s set to be another drag on the business. With mortgage deals becoming more expensive, it’s likely to keep first-time buyers and upsizers more cautious about moving, which could dent sales ahead. Barratt Redrow appears to be in a relatively resilient position with third-quarter reservation rates for new homes having increased. Alongside hopes that there could be an imminent resolution to the Iran war, it’s helped shares gain ground in early trade, but they are still down around 28% since the outbreak of the war, demonstrating that investors are hyper-wary about the effect on the overall housing market.
Even if there’s a breakthrough this week and the Strait of Hormuz reopens relatively quickly, supply snarl-ups for a range of essential commodities from oil and gas, fertiliser and helium are likely to take considerable time to unwind. Energy prices are set to stay significantly higher than pre-crisis levels, due to the damage to production and distribution facilities and global growth is set to decline or even go into reverse.
And in UK corporate news, Standard Life is beefing up its customer base and bolstering its business through the acquisition of Aegon’s UK arm. It has ambitions to rival Aviva and Legal & General in size, and this is a big step forward, with the deal giving it 16 million customers and £480 billion in assets under management. Through this deal it’ll become the UK’s second-largest workplace pensions provider, offering significant growth potential, despite the competition in the market. The UK has an ageing population and big pension adequacy gap, with more than half of current savers expected to struggle financially unless they up contributions, which offers big opportunities ahead for Standard Life. Its own survey out earlier this week showed that a chunk of retirees are returning to the workforce because of financial difficulties. The expansion of auto-enrolment schemes could also offer access to greater numbers of employees.”
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