[MARKET ANALYSIS] European indices slide as escalating US-Iran tensions sour trade sentiment

European bourses (STOXX 600 -0.7%) are lower across the board after Monday's choppy trade. Escalating US-Iran tensions return as a headwind for Europe, with energy prices rising, weighing on many of the continent's biggest industries (airlines, luxury). Overnight, the US continued to launch strikes for a third consecutive night, with US President Trump threatening to hit Iran's Pickaxe Mountain, a heavily fortified nuclear site.
Sectors highlight the negative bias. Basic Resources (+1.4%) and Energy (+1.1%) are printing decent gains, while Utilities (+0.6%) and Chemicals (+0.4%) also trade in the green. To the downside is Travel & Leisure (-2.5%), Media (-2.5%), and Consumer Products & Services (-2.0%).
Ericsson (-8.3%) reported Q2 earnings this morning, in which Q2 revenue missed estimates while other metrics also came in below expectations. However, adj. EBITDA beat consensus due to efficiency measures. Analysts at Bernstein and JPMorgan highlight that its gross margin guidance will weigh on the stock, guiding gross margin between 48-50% (exp. 49.7%). JPMorgan added that investors will worry about the component cost impact on margins, along with the mixed impact regarding lower US revenue impacting margins into H2.
Other key announcements include: Hapag-Lloyd (+5.6%), raises its FY EBIT and EBITDA guidance due to strong demand and freight rates; Evotec (-29.3%), H1 revenue and FY revenue guidance missed estimates by a big margin; BP (+2.6%), sees Q/Q upstream production contraction due to seasonal maintenance predominantly in the Gulf of America and the effects of disruption in the Middle East.
Plenty of broker moves this morning: Zealand Pharma (-1.7%) downgraded to hold at Jefferies, citing a lack of key value-crystallising catalysts in H2'26; Salzgitter (+6.5%) upgraded to buy at Jefferies, as it sees the Co. as a key beneficiary of more protectionist EU steel quotas, higher EU steel prices, and Germany's infrastructure spending from 2027 onwards; Pearson (-3.3%) downgraded to neutral at JPMorgan, citing only modest upside as forecasts are in line with the Co.'s guidance while seeing better value elsewhere.
US equity futures are mixed, with the NQ (+0.5%) outperforming as chip names rebound from Monday's rout. Banks will kick off the US earnings season, with JPM, BAC, GS, WFC and C all due. FactSet says that Financials are expected to post 6.6% Y/Y earnings growth (this view has been revised up vs. 5.2% at the start of the quarter).