European markets ended higher after a volatile session on Tuesday, as investors navigated geopolitical tensions, shifting rate expectations, and a flurry of corporate developments across sectors.
While equities showed resilience, weak economic data and rising uncertainty continued to cloud the broader outlook.
European stocks edge higher amid geopolitical volatility
European shares settled higher after a choppy trading session, with the STOXX Europe 600 rising 0.4% to 579.28 points after earlier falling as much as 0.7%.
Gains were led by telecom and energy stocks, which climbed 2.5% and 2.4%, respectively, while defence shares fell 1.1% and financials slipped 0.7%.
The travel and leisure sector, sensitive to oil price movements, edged up 0.1%.
Markets have been whipsawed by rapid shifts in rhetoric between Washington and Tehran.
US President Donald Trump said Washington had already had “very, very strong talks” with Tehran, though Iranian officials denied such discussions.
The Strait of Hormuz, which carries one-fifth of global oil trade, has largely been shut since the conflict began, while energy infrastructure in the Middle East has also come under attack.
European economies, heavily reliant on imported energy, face rising inflation risks if supply disruptions persist.
Markets are now pricing in at least two 25-basis-point rate hikes from the European Central Bank in 2026, a sharp shift from earlier expectations of steady policy.
Economic data also reflected the strain.
Euro zone private sector growth slowed sharply in March, while Germany’s expansion weakened and France’s economy contracted at its fastest pace since October.
UK retail sales slump as consumer demand weakens
In the UK, retail activity deteriorated sharply, highlighting pressure on consumer spending.
Data from the Confederation of British Industry showed retail sales volumes fell at the fastest pace since April 2020.
The CBI’s monthly gauge dropped to -52 in March from -43 in February, with only a modest improvement to -49 expected in April.
The survey, conducted between February 25 and March 13, coincided with the early phase of the Middle East conflict.
“Retailers report that weak economic conditions continue to weigh on household spending, with subdued activity also evident across the broader distribution sector,” said Martin Sartorius, Lead Economist at the CBI.
The conflict has pushed up petrol prices in Britain, adding to inflation concerns.
While the survey did not directly attribute the decline in sales to the conflict, it noted rising cost pressures on businesses and households.
“The conflict in the Middle East – which risks fuelling price pressures and squeezing household budgets – underscores the need for the government to take further action to lower the cost of doing business for distribution firms,” Sartorius added.
Puig surges on Estée Lauder merger talks
Shares of Puig surged 12.9% after Estée Lauder confirmed talks over a potential merger, reigniting interest in a deal that could reshape the global prestige beauty market.
The combined entity could generate around $20 billion in annual sales and carry an implied valuation exceeding $40 billion.
While Estée Lauder brings scale and brand breadth, Puig offers stronger recent growth and profitability.
However, analysts remain divided.
Citigroup flagged investor skepticism toward large-scale mergers, citing muted reactions to previous deals.
Still, analysts led by Filippo Falorni said the transaction could generate synergies worth about 5% of sales and deliver double-digit earnings-per-share growth in the first year.
Deutsche Bank took a more cautious stance, noting that Estée Lauder’s share price reflects investor unease about the complexity of the deal.
Volkswagen explores defence pivot with Iron Dome plan
Volkswagen is in talks with Rafael Advanced Defence Systems to repurpose its Osnabrück plant in Germany to produce components for the Iron Dome air defence system, reported Financial Times.
The plan aims to preserve the plant’s 2,300 jobs as Volkswagen restructures operations amid declining profitability and rising competition.
One person familiar with the discussions said the goal was “to save everybody, maybe even to grow.”
The facility would manufacture components such as trucks, launchers, and generators, while missile production would take place separately.
Production could begin within 12 to 18 months, subject to worker approval.
The discussions come as Europe ramps up defence spending, with Germany planning more than €500 billion in outlays by the end of the decade.
The move underscores a broader shift among manufacturers seeking to redirect excess capacity toward defence production.
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