Source: Sharecast
Following a brief stint in positive territory, the pan-European Stoxx 600 finished down 0.3% at 540.61, though bounced off its lowest levels of the day as markets in London, Milan and Madrid pushed into the green by the close.
Nevertheless, this was the Stoxx 600's lowest closing level since 9 May, having now fallen in seven of the past eight trading sessions.
Israel and Iran continued to trade airstrikes on Wednesday, was Donald Trump called for Tehran's "unconditional surrender". The US president claimed that Washington is aware of Supreme Leader Ayatollah Ali Khamenei’s whereabouts but wouldn't kill him "at least for now".
He also said that "we now have complete and total control of the skies over Iran", suggesting close contact between Washington and Tel Aviv, and raising fears that the US may join in Israel's strikes.
Brent crude was down 1.6% at $75.21 a barrel, pulling back after a big jump on Tuesday, but was still trading around levels not seen since the start of the year on fears that the conflict could disrupt supplies running through the Strait of Hormuz.
UK, EU and US data on tap
In macro news, the year-on-year rate of UK inflation eased to 3.4% in May from 3.5% in April, in line with economists' expectations. However, food inflation picked up to 4.4% – its highest in 15 months.
The data is unlikely to have changed the consensus for Thursday's policy decision at the Bank of England, with market participants expecting interest rates to be left where they are as rates stay significantly above the central bank's target of 2%.
However, Danni Hewson, AJ Bell head of financial analysis, said there could be "a degree of wiggle room". With both core inflation and service sector inflation having slowed, Bell said the BoE "may want to get ahead of potential volatility in order to stimulate a flatlining economy which looks perilously close to toppling towards stagflation. But with such uncertainty and volatility, staying put might seem like the only smart move."
Meanwhile, final estimates from Eurostat confirmed that eurozone inflation fell to 1.9% last month from 2.2% in April, dropping below the European Central Bank's 2% target for the first time in eight months. The core inflation rate also fell to 2.3% from 2.7%, in line with the earlier estimate and the lowest rate since October 2021.
Over on Wall Street, building permits and jobless claims figures were released, though US investors were focusing on the Federal Reserve’s latest policy announcement, due after the close of European markets. However, no changes to the policy rate are expected.
Market movers
German packaging group Gerresheimer jumped due to reports that KPS Capital Partners was still potentially teaming up with Warburg Pincus on a possible takeover approach for the company.
Swiss pharma outfit Bachem was rising strongly after positive comments from Berenberg, which initiated coverage with a 'buy' rating and a target price which predicts 35% upside from current levels. The broker labelled Bachem a "high-growth stock with a lot of caution priced in".
French aerospace giant Airbus was on the ascent after announcing that it would hike its dividend payout ratio over the coming years amid predictions of strong demand for aircraft.
In London, M&A speculation was causing some big swings in mid-cap stocks: Tullow Oil tumbled on reports that potential merger talks with Canadian-listed peer Meren Energy have collapsed; while ME Group shares surged after the board said it was "evaluating strategic options to enhance shareholder value", including a potential sale.
