European shares were muted on Wednesday following the previous day's rally, as investors evaluated a range of corporate earnings reports while monitoring the evolving situation in the Middle East.
The pan-European STOXX index (.STOXX) edged up 0.06% to 620.31 points as of 0832 GMT.
Major regional markets were also mixed, with Germany's DAX (.GDAXI) up 0.1%, while France's CAC (.FCHI) fell 0.6%.
Diplomatic efforts offered a glimmer of hope for resolving the war in the Middle East as U.S. President Donald Trump said that talks with Iran could resume in Pakistan within the next two days.
The fresh effort comes after negotiations collapsed last weekend, prompting Washington to impose a blockade on Iranian ports. Officials from both Pakistan and Iran have confirmed the potential restart of negotiations.
The prospect of a diplomatic resolution has helped the STOXX 600 recover most of the losses it had sustained since hostilities erupted in late February, reflecting investors' optimism about potential de-escalation in the region.
"There's obviously been a very strong recovery from the March lows, but as we move further into earnings season and as macroeconomic data picks up again, we're going to start to see the real-life impact of the war," said Fiona Cincotta, senior market analyst at City Index.
LUXURY SECTOR STRUGGLES
Corporate earnings remained a key focus for investors.
Hermes (HRMS.PA) plunged 9.5% after the French luxury group reported a hit to first-quarter sales linked to the Iran war.
Sales at Kering's (PRTP.PA) Italian flagship brand Gucci dropped by 8% in the first quarter from the previous year. Shares of the luxury fashion group fell 9.5%.
Luxury sector (.STXLUXP) led the losses with a 3.5% drop.
On the other hand, healthcare stocks (.SXDP) were leading gainers, up 1%. Novo Nordisk (NOVOb.CO) and AstraZeneca (AZN.L) advanced 3.5% and 1%, respectively.
Technology sector jumped 1% with ASML (ASML.AS) rising 1.5% after the Dutch semiconductor equipment leader raised its 2026 revenue outlook as demand for AI chipmaking tools rises.
Aixtron (AIXGn.DE) surged 12% to its highest in two years after the chip systems manufacturer raised its revenue outlook for 2026.
ECB MONITORS INFLATION DEVELOPMENTS
On the monetary policy front, European Central Bank President Christine Lagarde said the bank is not yet in a position to determine if the current oil price-driven inflation shock is transitory or requires the bank to raise interest rates.
The chances of a rate hike at the central bank's next meeting in April have, meanwhile, eased and were last at around 24%, down from 50% on Monday, according to LSEG data.
