European shares fell for a second straight session as surging oil prices and rising bond yields stoked inflation fears ahead of the Federal Reserve's rate decision. Banks led losses on the STOXX 600 while Italy's FTSE MIB dropped the most among major regional benchmarks.
European shares slipped again on Tuesday, with banks among the heaviest drags as oil prices and government bond yields climbed and squeezed risk appetite ahead of the Fed's policy decision later this week.
Banks drag on regional benchmarks
The pan-European STOXX 600 was down 0.4% at 633.3 points as of 0707 GMT. Banks were the biggest laggard, down 1.3%, while most other sectors traded lower, barring healthcare and travel and leisure.
Losses were steeper elsewhere in the region. Germany's DAX fell 0.4%, France's CAC 40 and the UK's FTSE 100 each dropped 0.6%, and Spain's IBEX slipped 0.5%, according to InvestingLive. Italy's FTSE MIB led the region's declines, falling 1.2% after a rough selloff the day before that had also hit tech names Prysmian and STMicroelectronics.
Oil and yields stoke inflation fears
Brent crude traded above $107 as renewed attacks on Saudi energy infrastructure this week revived supply concerns. Oil-driven inflation worries tied to escalating Middle East tensions showed no signs of abating, reinforcing bets that central banks worldwide could raise interest rates this year.
The moves in energy markets came alongside a jump in government debt costs. Investing.com reported the U.S. 10-year Treasury yield hit the psychological 5% level for the first time since October 2023 on Monday. InvestingLive separately put 10-year yields above 5.02% on Tuesday. Traders are increasingly betting on a 25-basis-point Fed rate hike this week. The European Central Bank raised rates for a second time last week.
AI jitters and single stocks add pressure
Tech shares stayed cautious after Monday's broader selloff in AI-linked stocks, as calls from senior AI industry figures to slow development weighed on semiconductor and infrastructure names, InvestingLive said. U.S. futures also pointed lower, with S&P 500 futures down about 0.4% and Nasdaq futures down 0.3%.
Among single stocks, Deutz slipped 4.5%. The firm separately offered up to 10% of its shares in a capital increase. InvestingLive noted equities will likely struggle to find a rebound until at least one of oil prices, bond yields, the Fed's stance or the AI selloff eases.
Sources: Investing.com, InvestingLive
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