European stocks moved lower again on Tuesday, remaining close to multi-month lows as investors weighed rising geopolitical tensions in the Middle East, elevated bond yields, and renewed concerns over artificial intelligence development.
The Stoxx Europe 600 Index fell 0.4%, while Germany’s DAX slipped 0.2%.
France’s CAC 40 and London’s FTSE 100 both declined 0.4%, while Italy’s FTSE MIB dropped nearly 1%.
Oil Prices Rise as Gulf Tensions Escalate
Oil prices continued to climb as geopolitical risks in the Middle East intensified.
Brent crude futures gained another 1.2% on Tuesday, moving above $113 a barrel and extending a strong multi-week rally.
Saudi Arabia officially blamed Iran-backed groups in Iraq for an attack on its East-West pipeline.
Saudi officials warned that the disruption could potentially affect as much as 4% of global oil supplies.
Houthi Attacks Add to Supply Concerns
Yemen’s Houthi militants also launched fresh attacks on Saudi territory and key maritime routes.
The latest escalation has reduced hopes for a quick reopening of the Strait of Hormuz.
Regional peace talks in Oman were unexpectedly postponed, adding further uncertainty to the outlook for oil shipments through the Gulf.
The combination of pipeline disruptions and shipping risks has kept crude prices elevated and added pressure to European markets.
Fed Meeting Keeps Investors Cautious
Investors are also focused on the Federal Reserve’s two-day policy meeting.
Markets are currently pricing in around a 90% chance that the Fed will raise interest rates by 25 basis points.
If confirmed, the move would mark the central bank’s first rate increase since mid-2023.
The decision would follow the European Central Bank’s recent quarter-point rate hike to 2.50%.
Bond Yields Remain Elevated
Persistent inflation concerns have kept global bond yields high.
The latest U.S. inflation data strengthened expectations that central banks may need to maintain restrictive monetary policy.
The benchmark U.S. 10-year Treasury yield remained close to 4.98%.
Meanwhile, Germany’s 10-year Bund yield held near 3.51%.
Higher yields can weigh on equity valuations by increasing borrowing costs and making bonds more attractive compared with stocks.
AI Safety Concerns Pressure European Tech Stocks
Technology stocks also remained under pressure.
Semiconductor and technology companies listed in Frankfurt and Amsterdam extended recent losses after executives from OpenAI and Anthropic called for a temporary slowdown in the development of advanced AI models.
The proposal is aimed at creating stronger global standards for managing AI-related risks.
However, investors are concerned that slower development could affect technology spending and earnings growth across the sector.
German ZEW Data Comes Into Focus
European investors are also waiting for fresh economic data from Germany.
The ZEW Economic Sentiment index is due later in the session and could provide further clues about business confidence in the euro zone’s largest economy.
Markets will be watching closely for signs that higher energy costs and tighter monetary policy are weighing on economic sentiment.
For now, European stocks remain under pressure as investors balance rising oil prices, geopolitical risks, high bond yields, and uncertainty surrounding central bank policy.
