Germany's blue-chip DAX index closed 1.31% lower on Wednesday, amid reignited tensions in the Middle East and new tariff warnings from the US.
Deutsche Bank Research noted "increasing pessimism" over a swift US-Iran agreement to reopen the Strait of Hormuz following overnight hostilities. The escalations involved US strikes on Qeshm Island and reciprocal Iranian missile and drone deployments targeting Kuwait and Bahrain.
"Prior to that, we saw little sign yesterday of concrete steps towards an imminent deal... This backdrop means [West Texas Intermediate] crude is now $7 [per barrel] above Friday's close, with a +0.92% rise at $94.62/bbl overnight," Deutsche Bank wrote.
On the trade front, Washington proposed new 10% to 12.5% tariffs on 60 economies, including the European Union, following an investigation into the import of goods allegedly produced with forced labor.
Back home, final business survey data showed that Germany's private sector remained in contraction territory for a second consecutive month, as surging cost pressures and muted demand further eroded service sector activity. S&P Global said the final Germany Composite PMI Output Index ticked up to 48.8 in May from 48.4 a month ago, surpassing the flash estimate of 48.6 but remaining below the 50-point neutral mark. Final services PMI was 48.1, against the preliminary estimate of 47.8 and the prior month's 46.9.
"Demand for services continues to be stifled by a squeeze on spending power from the increased cost of energy and heightened levels of uncertainty, although, encouragingly, the rates of decline in business activity and new work eased, offering hope that any downturn in the economy in Q2 would be only modest," S&P Global Market Intelligence economics associate director Phil Smith said.
On the corporate side, Bloomberg reported comments from Deutsche Bank (DBK.F) Chief Financial Officer Raja Akram, who said the German lender anticipates second-quarter credit loss provisions to come in slightly above market expectations. Speaking at an investor conference, Akram clarified that the 100 million-euro provision for the three months through June still represents a sequential drop compared with the first quarter. Deutsche Bank was down 3.65% at closing.