European stock markets suffered heavy losses on Tuesday, with multiple indices falling to levels not seen in weeks or even months. The escalation of tensions in the Middle East directly hurt investors' risk appetite, leading to a large-scale withdrawal of funds from risk assets.

Trump stated that the conflict could last 4 to 5 weeks, but it could also extend far beyond that, prompting markets to seriously assess the risks of a prolonged conflict. ECB Chief Economist Philip Lane explicitly warned in an interview that ongoing conflict in the Middle East and disruptions to oil and gas supplies in the region could cause a sharp surge in eurozone inflation and a steep decline in output. More alarmingly, Iran claimed to have closed the Strait of Hormuz, the world's most critical oil transportation route; if truly blocked, the consequences would be unimaginable.

The market reaction was very direct. The pan-European Stoxx 600 index fell 3.48%, the UK FTSE 100 dropped 2.75%, Germany’s DAX declined 3.44%, France’s CAC 40 fell 3.45%, and Switzerland’s SMI slid 3.1%. Other European markets also plunged into red, with Austria, Belgium, Czech Republic, Denmark, Finland, Greece, Iceland, Ireland, the Netherlands, Norway, Poland, Portugal, Spain, Sweden, and Turkey all falling between 3% and 6%.

Bank stocks tumbled again, and airlines, as many carriers announced cancellations or rerouted flights, also suffered. In the UK market, Intertek reported higher fiscal 2025 earnings but still saw its stock plunge 18.1%. DCC, Endeavour Mining, Persimmon, Antofagasta, IAG, Fresnillo, and several other stocks declined between 3% and 6%. Industrial engineering firm Smiths Group fell sharply after announcing a £164 million acquisition of DRC Heat Transfer, while Smith & Nephew rose 3.6% against the trend.

In Germany, Beiersdorf plummeted 19.8% due to a weaker outlook for 2026. Blue-chip stocks like Infineon, Bayer, Continental, and Siemens generally declined between 3% and 7%. In France, ArcelorMittal dropped 7.7%, Kering declined 6.5%, and other major companies fell between 3% and 7%.

On the economic data front, the eurozone’s February annual inflation rate rose to 1.9%, up from 1.7% in January and above the market expectation of 1.7%. These quotes and data confirm the real impact of geopolitical risks on the economy. French inflation accelerated from 0.4% to 1.1%, Spain from 2.4% to 2.5%, and Italy from 1.0% to 1.6%. UK retail price inflation eased from 1.5% in January to 1.1% in February, with food prices dropping from 3.9% to 3.5%.

Overall, the market is still pricing in geopolitical risks, with oil prices, inflation expectations, and corporate earnings outlooks all undergoing reassessment. In this environment, the pressure on risk assets is unlikely to ease in the short term.