FRANKFURT: Europe’s benchmark STOXX 600 closed lower on Tuesday, as expectations for imminent interest rate hikes by the Federal Reserve and concerns around increased corporate spending on AI dented sentiment.
The pan-European index closed 0.7 percent lower, after paring some of its earlier gains. It had hit its lowest level since June 12, with most sectors trading in negative territory.
Stocks in Asia fell earlier in the day and those on Wall Street also saw sharp declines. Crude oil fell about 1 percent while gold slipped more than 2 percent.
The tech sector was the biggest weight on the STOXX 600 with a 3.7 percent fall, logging its biggest daily drop since February as investors globally reassessed companies that rallied earlier this quarter on AI enthusiasm.
Chipmakers Infineon and STMicroelectronics declined 6.3 percent and 8.5 percent, respectively, while semiconductor equipment makers ASML and Aixtron slipped 5.7 percent and 8.3 percent respectively.
European tech stocks have been the biggest gainers among major sectors this quarter. However, as borrowing costs tick higher, companies banking on debt-backed spending are likely to come under pressure. Infineon and STMicroelectronics are among those that have recently tapped the debt markets.
“If…the companies need to continue raising debt before they’re earning sufficient returns on that investment, investors could start to question the profile of the debt and the potential earnings sustainability on the equity side,” said Kiran Ganesh, managing director, global head of investment communications at UBS.
“This debt issuance is a trend that investors will need to keep watching out for the next one or two years.”
Alongside, investors raised bets on monetary policy tightening in the US, with traders now pricing in a 25 basis-point hike and an over 50 percent chance of another similar increase by end-2026, LSEG-compiled data showed.
Markets are also holding on to bets that the ECB will lift borrowing costs by another 25 bps later this year, despite European Central Bank President Christine Lagarde downplaying second-round inflation fears on Monday.
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