Europe close: Stocks pare gains as oil prices return to growth

(Sharecast News) - European shares had given up some of their earlier gains by the close on Wednesday as oil prices resumed their rise, while investors monitored the latest developments around the US-Iran peace deal and looked ahead to the Federal Reserve's interest rate decision. The pan-European Stoxx 600 rose 0.52% to 639.31.

Germany's DAX added 0.1% to 24,934.67, while France's CAC 40 slipped 0.2% to 8,430.79, and London's FTSE 100 was ahead 0.41% to 10,508.61.

In commodities, Brent crude was last up 0.71% on ICE at $79.52 per barrel, while the NYMEX quote for West Texas Intermediate gained 0.78% to $76 64.

David Morrison, senior market analyst at Trade Nation, said European stock indices were mixed in early trade as investors were reluctant to take a strong view following weakness on Wall Street and ahead of the Federal Reserve's monetary policy meeting, the first under new chair Kevin Warsh.

The Federal Open Market Committee meeting is the first under Warsh, with economists expecting policymakers to keep rates unchanged in a target range of 3.5% to 3.75%, despite renewed pressure from energy prices linked to US president Donald Trump's war with Iran.

Morrison said there was speculation that Warsh preferred less transparency from the US central bank and could move away from the "running commentary" from Fed officials, as well as the quarterly "dot plot" showing policymakers' forecasts for the path of rates.

"So, it's possible that tonight is the last time that we'll see a 'Dot Plot' so be prepared to make the most of it," he said.

Morrison said US futures were modestly firmer ahead of the decision, with no change in rates expected.

However, he said the CME FedWatch Tool implied a 60% chance of at least one rate increase before the end of the year and a 40% chance of no change.

Russ Mould, investment director at AJ Bell, said: "In the US, the Federal Reserve will make its latest interest rate decision tonight and is not expected to make any changes.

"The real talking point will be new chair Kevin Warsh's views on the outlook for rates. Markets aren't expecting any change until at least the end of the year, and even that looks uncertain.

"Markets are pricing in a 42% probability of a US rate hike at the December meeting, nearly the same as no change," he added.

"The US economy has shown remarkable resilience, throwing cold water on the idea which permeated at the start of 2027 that the Fed would have to cut rates several times amid concerns around the jobs market."

Morrison said it still looked as if a formal agreement between the US and Iran to end the war could be signed in Switzerland on Friday.

Trump has insisted that the Strait of Hormuz will soon reopen tariff-free, although Morrison said Tehran may have other ideas.

Euro area inflation confirmed at two-and-a-half-year high

On the economic front, eurozone inflation was confirmed at a two-and-a-half-year high in May, as price pressures intensified for a fourth consecutive month.

Eurostat said consumer price inflation rose to 3.2% from 3.0% in April, in line with the initial estimate and the highest rate since September 2023.

Energy prices rose 10.8% year-on-year, matching April's pace, while food, alcohol and tobacco inflation slowed to 1.9% from 2.4%.

Core inflation, excluding volatile items, rose to 2.6% from 2.2%, driven by a jump in services inflation to 3.5% from 3.0%.

The highest inflation rates were recorded in Bulgaria and Lithuania, at 6.3% and 5.1%, while the lowest were in Malta and Germany, at 2.1% and 2.7%.

Sweden's Riksbank meanwhile left its key interest rate unchanged at 1.75%, as expected, but said the chance of a rate rise later this year had increased.

The central bank said inflation remained low and activity was somewhat weaker than normal, but supply disruptions linked to the Middle East war had raised price pressures.

It also warned that the conflict could interact with wider global vulnerabilities, including high equity valuations and elevated public debt.

In the UK, inflation unexpectedly held steady in May.

The Office for National Statistics said consumer price inflation was 2.8%, unchanged from April and below expectations for a rise to 3.0%.

Transport made the largest upward contribution, with airfares, vehicle taxes and petrol prices all rising.

Motor fuel inflation reached 24.6%, the highest rate since September 2022, while airfares rose 10.3%.

Food inflation helped offset the pressure, easing to 2.2% from 3.0%, its lowest rate since December 2024. Core inflation rose 2.6%, below market expectations for 2.7%.

The Bank of England is widely expected to leave Bank Rate unchanged at 3.75% on Thursday.

UK house prices rose 3.8% in the year to April to an average of £270,000, according to the ONS, the strongest annual rate since March 2025.

Prices rose to £291,000 in England, £212,000 in Wales and £192,000 in Scotland.

Private rents increased 3.3% in the year to May, slowing from 3.5% in April.

Auto1 Group surges, BMW in the red

In equity markets, Auto1 Group surged 8.35% after the online used car retailer confirmed its 2026 guidance.

BMW slumped 8.34% after the German carmaker cut guidance because of weakness in China and the impact of the Iran war.

"BMW shares hit the brakes after guiding for a big drop in profits," Mould said.

"The Iran war has had a negative impact on consumer sentiment and that's dampened demand for its vehicles.

"It has also found life harder going in China because of competition from domestic players."

Straumann jumped 10.8% after the Swiss dental implant company lifted its fiscal outlook.

Reporting by Josh White for Sharecast.com.