European stocks ease from record highs as investors weigh earnings, Middle East risks

European shares pulled back from record highs on Wednesday, as investors digested corporate earnings reports and developments in the Middle East, while a benign U.S. inflation reading eased concerns of a Federal Reserve interest-rate hike next month.

The pan-European STOXX 600 closed 0.16% lower at 659.48 points.

The benchmark has rallied in recent sessions on robust earnings, with LSEG estimates pointing at 22% growth in second-quarter earnings.

However, with nearly half of that growth driven by the energy sector, investors remained wary that persistently high oil prices could stoke inflation in the energy-dependent region, with no signs of progress in U.S.-Iran talks aimed at ending the Middle East conflict.

"The longer energy prices sustain at a higher level, workers could start demanding higher wages to accommodate inflation and that would put pressure on margins across the board for European companies," said Martin Frandsen, portfolio manager at Principal Asset Management.

A senior Iranian official said that there was no progress on reviving an interim peace deal with U.S. 

Brent crude futures eased 0.1% as traders weighed those comments against a lower demand forecast by the Organisation of the Petroleum Exporting Countries. 

Meanwhile, U.S. consumer prices rose in line with expectations in July, reducing the odds of an interest rate hike from the Fed next month. 

On the STOXX 600, healthcare sector slipped 1.2%, weighed down by EssilorLuxottica's 4.3% fall. A German advocacy group filed a criminal complaint over Meta's AI glasses and units of the French eyewear maker for violating privacy laws. 

The personal and household goods shares led losses with a 1.9% dip. 

Aerospace and defence index led sectoral gains, rising 1.1%, as investors sought exposure to companies that typically benefit from heightened geopolitical risk.

The luxury sector was the biggest decliner, down 2.9%.