Europe Bulletin: STOXX drops, OECD cuts UK growth outlook

European markets and corporate developments reflected heightened uncertainty on Thursday, as geopolitical tensions, tightening financial conditions, and sector-specific challenges weighed on sentiment across the region.

Stocks declined across the region, Porsche signaled a shift toward defence investments, and the OECD downgraded the UK’s growth outlook while warning of rising inflation.

European stocks fall as rate hike bets and war risks weigh

European shares snapped a three-day winning streak, with the pan-European STOXX 600 index falling 1.2% to 580.59 points as fading hopes of a near-term de-escalation in the Middle East conflict dampened investor sentiment.

Miners and defence stocks led declines, while cyclical sectors such as industrials and banks dropped around 2% each.

A senior Iranian official told Reuters that the US proposal for ending the war was "one-sided and unfair."

The ongoing conflict, now in its fourth week, has increased uncertainty over global energy flows, particularly through the Strait of Hormuz, leaving Europe vulnerable to rising crude prices and renewed inflation concerns.

The STOXX index has declined 8.4% since the conflict began and is approaching correction territory.

ECB policymaker Joachim Nagel signaled that an April rate hike was "an option," reinforcing expectations of tighter monetary policy.

Interest rate futures now reflect a 71% probability of a rate hike, while short-term bond yields have risen, adding further pressure on equities.

UBS suspends redemptions in real estate fund

Swiss lender UBS has suspended withdrawals from its Euroinvest real estate fund for up to three years, citing insufficient liquidity to meet redemption requests.

The Germany-based fund had €406.8 million in assets under management as of February.

"In this challenging market environment, UBS Real Estate GmbH has taken the decision to suspend redemptions at this time to ensure the protection of all ⁠our investors' interests," the bank said in a statement.

UBS also halted new share issuance, warning that additional inflows would not materially improve liquidity and could expose investors to heightened risks if the fund were eventually wound up.

The move reflects broader stress in asset management, following similar redemption caps imposed by firms such as Ares, Apollo Global, and BlackRock’s HPS Corporate Lending Fund amid rising withdrawal pressures.

Porsche shifts focus to defence investments as auto earnings drop

Porsche SE announced plans to expand its investments in the defence sector, as declining earnings from its core automotive holdings push the company to diversify.

The firm reported adjusted earnings after tax of €2.9 billion for 2025, down about 9% year on year, reflecting weaker performance at Volkswagen and Porsche AG.

"Overall, Porsche SE sees significant growth potential in the defence and security sector," CEO Hans Dieter Poetsch said.

The company committed €100 million to a newly launched defence fund managed by DTCP, focusing on European technology startups in areas such as cyber defence and artificial intelligence.

While automotive investments have struggled amid tariffs and halted EV rollouts, smaller investments generated €193 million in profit, driven by stakes in firms such as Quantum Systems and Celestial AI.

"We expect the management of both Volkswagen AG and Porsche AG to view the challenging situation as an opportunity to implement the strategic ⁠adjustments," Poetsch said.

OECD cuts UK growth forecast, flags rising inflation risks

The OECD sharply downgraded the United Kingdom’s economic growth outlook, cutting its 2026 forecast by 0.5 percentage points to 0.7%, marking the largest downgrade among major economies.

"Planned fiscal tightening and higher energy prices are anticipated to keep growth subdued ⁠in the United Kingdom, though the impact will be attenuated by lower policy rates next year," the OECD said.

Inflation forecasts were revised upward significantly, with 2026 inflation now projected at 4.0%, a 1.5 percentage point increase from previous estimates.

Inflation is expected to remain above the Bank of England’s 2% target through 2027.

The OECD attributed the outlook to rising energy costs and geopolitical disruptions, particularly from the Middle East conflict.

While the Bank of England is expected to hold rates steady this year, easing may only begin in early 2027.