European markets cooled off Wednesday, pulling back from the highs of the past week as caution replaced earlier momentum. The STOXX 600 index dipped by about 0.2%, mirroring the 0.2% fall in the FTSE 100, which struggled under the weight of rising UK inflation—now at 3.8%, a peak not seen since early 2024.
Defence stocks were especially vulnerable, retreating for a second straight day as signs of a possible peace deal in Ukraine dimmed demand. The U.S. President signaled possible air support for Ukraine—though no boots on the ground—further fueling speculation and uncertainty.
Tech shares also stumbled, down roughly 0.4%, shaking off optimism after Wall Street’s slip on fears of overheated AI hype and anxiety ahead of central bank speeches scheduled for Jackson Hole. Investors appeared to be locking in gains after months of bullish runs, with markets hovering near record highs.
ECB President Christine Lagarde offered some reassurance, noting that the new U.S.–EU trade agreement isn't materially different from what Europe had already factored into its economic models. Meanwhile, Sweden’s central bank hit pause on rate changes but suggested rate relief could be on the horizon later in the year.
Corporate earnings expectations cooled slightly as well. Analysts trimmed second-quarter growth projections to about 4.6%, down from 4.8% last week. Among individual standout performers, Alcon took a hit—its shares slid nearly 9.4% after cutting its 2025 sales forecast due to U.S. tariff impacts. On the other hand, Convatec rallied over 7% after announcing a substantial $300 million share repurchase initiative.
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