European ​shares drop to lowest level in more than a month

The pan-European STOXX 600 was down 1.4% at 640.41 points, hitting the lowest since late July

European ​shares dropped on Wednesday to their lowest in more than a month after crude prices surged above the key $100 a barrel mark as escalating Middle East tensions heightened inflation concerns and dampened risk appetite.

The pan-European STOXX 600 was down 1.4% at 640.41 points, hitting the lowest since late July. Most of the regional bourses also traded sharply lower.

Finland’s blue chips were a bright ​spot, firming 0.8% to hit their highest in nearly three months.

Fortum led gains on the STOXX 600, ​jumping 15.8% after the Finnish energy group signed a long-term power purchase agreement with Google. The ⁠technology company said it would invest at least €13 billion ($15.1 billion) in AI infrastructure in Finland over the two years.

Brent ​futures topped $100 a barrel for the first time since late July after Iran and the U.S. struck tankers in the biggest wave of ​shipping attacks since the war began, raising the prospect of further disruptions to Middle East energy supplies.

Energy was the only sector in positive territory, up 0.3%, while all other major sectors dropped. The Euro STOXX volatility index rose 2.17 points to its highest level in a ​week.

Higher oil prices mean higher inflation expectations, which also means higher chances of interest rate hikes and the higher ​bond yields, said Kiran Ganesh, managing director, global head of investment communications at UBS.

So, oil is the key driver, and it’s having ‌a ⁠compounding negative impact on equities over the past few days, Ganesh said.

With volatility rising, investors appeared reluctant to add risk ahead of a packed run of central-bank decisions and economic data that could shape expectations for growth and borrowing costs.

Euro zone government bond yields reached new multi-year highs on the day before the European Central Bank meeting as traders priced in two hikes ​in 2026 and a 3.1% ​rate by late 2027.

There ⁠is a risk that, the ECB perhaps overreacts to the move in oil prices, and then that causes a more negative impact on the rest of the economy, Ganesh said.

Markets ​widely expect the ECB to raise rates on Thursday, according to LSEG-compiled data.