Middle East war hangs over Europe Inc as earnings season kicks off

• European blue chip earnings projected to grow 4.2% in Q1, driven primarily by energy sector profits expected to surge 24% year-over-year due to elevated crude prices
• Direct exposure to Middle East remains in low single digits, but indirect risks include supply chain disruptions, higher inflation, and potential ECB rate hikes of 50 basis points twice
• Luxury brands like LVMH and Kering reported Q1 sales hits from the conflict, while some companies have increased buybacks to counter recent stock declines amid uncertainty

Summary: Middle East War Hangs Over Europe Inc as Earnings Season Kicks Off

European companies are expected to deliver resilient first-quarter earnings despite the ongoing Middle East conflict with Iran, though investors warn of mounting risks for the remainder of the year. While Q1 results should be "relatively solid," concerns are growing about higher energy prices, supply-chain disruptions, and weakening economic growth.

Key Figures:

• European blue chips' earnings expected to grow 4.2% in Q1 (STOXX 600 companies)
• Energy sector profits projected to surge 24% compared to last year
• Direct exposure to Middle East estimated at low single digits
• First-quarter revenues expected to fall 0.6% on average (excluding energy sector)
• Potential ECB rate hikes of 50 bps twice anticipated

Sector Winners and Losers:

*Winners:* Energy companies are benefiting from higher crude prices. Renewables expected to gain as Europe accelerates alternative energy investments. Banks could profit from potential interest rate increases.

*Losers:* Consumer and luxury firms face pressure from inflation. LVMH and Richemont already flagged Q1 sales hits from reduced Middle East spending.

Company Highlights:

ASML reported better-than-expected quarterly earnings and raised its annual outlook, driven by AI demand. German chipmaker Aixtron also lifted its 2026 sales outlook.

Market Implications:

Analysts caution that while Q1 numbers may meet expectations, full-year guidance could disappoint. The conflict's duration remains the critical variable. Some companies have postponed dividend proposals due to uncertainty, though others have increased buybacks to support share prices amid recent volatility. Europe's STOXX 600 has rebounded after initial war-related declines.