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STOXX 600 drops amid geopolitical concerns

written by Bella Palmer

The pan-European STOXX 600 ended 1.6% lower, hitting its lowest since March 7, in a wider market decline

Europe's main stock index notched its biggest one-day decline in more than nine months on Tuesday, with miners and banks leading losses, as investors steered clear of risky assets amid heightened tensions in the Middle East.

The pan-European STOXX 600 ended 1.6% lower, hitting its lowest since March 7, in a wider market decline. Higher euro zone bond yields also pressured equities.

Basic resources dropped 3.1%, its biggest one-day drop since mid-August, as copper prices pulled back on weak China factory data and a strong U.S. dollar.

Banks shed 2.6%, their biggest one-day decline since August, dragged by 3% drop in Britain's HSBC and euro zone's biggest bank BNP Paribas.

Among other sectors, automobiles, insurance and energy also shed nearly 2% each.

Main indexes in Germany, France, Italy and Spain lost more than 1% each, tracking a global risk-off mood amid growing tensions in the Middle East.

There are upside risks relating to Middle East tensions and these will add to central banks' caution, but we still see the European Central Bank and BoE reducing rates from June, according to Capital Economics chief global economist Jennifer McKeown.

Nevertheless, ECB policymakers continued to make the case for a June rate cut as inflation stays on course to 2% by next year, even if the price path still proves bumpy.

Earlier in the day, brokerages Morgan Stanley and Deutsche Bank said they expect the ECB to lower borrowing costs by 75 bps this year, on uncertainty over the U.S. Fed's rate cut outlook and sticky inflation.

Investors' confidence of early rate cuts had triggered a rally in the STOXX 600 since late 2023, last seen reaching a record high earlier this month.

Focus is now on quarterly results, with earnings expected to drop 12.1% in the first quarter year-on-year, according to the latest LSEG data.


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