Europe: Shares close at one-month low on Fed rate cut worries, tech valuations

EUROPEAN shares fell on Tuesday, with those in Germany near a five-month low as a broad risk-off mood gripped global markets, sparked by worries about an overvalued tech sector and diminishing prospects of an imminent interest rate cut from the US Federal Reserve.

The pan-European Stoxx 600 fell 1.72 per cent to 561.86 points to close at a one-month low, registering its worst day since August.

Major regional bourses such as Germany’s DAX and France’s CAC 40 fell 1.8 per cent and 1.9 per cent, respectively. Reflecting investor nervousness, a volatility gauge jumped 2.7 points to 22.89, its highest level since the US regional bank sell-off in mid-October.

“A higher volatility means higher anxiety throughout the market” reflecting “doubts regarding AI valuations, what the Fed might do next, and the uncertainty around the US economic data and around the long-term borrowing costs,” said Ipek Ozkardeskaya, senior market analyst at Swissquote Bank.

“The higher the volatility, the higher the chances of a deeper market correction.” Investor sentiment globally has been fragile, with expectations high for Nvidia to deliver standout results on Wednesday.

In Europe, shares in AI equipment makers dipped. Siemens Energy lost 6.4 per cent and Schneider Electric fell 2.4 per cent, while ABB’s shares dropped 4.1 per cent after the company reaffirmed its top-line growth forecasts, disappointing investors.

Nvidia, with its dominance in AI chips, has become the bellwether for the trend which has sparked gains in tech and infrastructure stocks across the globe. However, the worry is that the AI rally has made related sectors overvalued.

Losses were across the board, with European banking stocks down 2.9 per cent and among the biggest drags on the Stoxx index.

Auto stocks lost 2.9 per cent, with Stellantis falling 4.4 per cent. Miners declined 2.6 per cent, while tech stocks lost 1.8 per cent.

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Traders are also cautious ahead of the long-delayed US jobs report due on Thursday.

While private surveys have pointed to a softening labour market, hawkish remarks from Fed policymakers have dampened expectations of an interest rate cut in December.

Among other moves, British online supermarket and technology group Ocado slumped 17.4 per cent after US partner Kroger said it would close three automated warehouses in January, dealing a major blow to the Ocado investment story.

Umicore fell 14.3 per cent after GroepBrussel Lambert (GBL) cut by half its stake in the company.

Roche rose 6.8 per cent after its experimental oral drug Giredestrant was shown to cut the risk of recurrence of a common form of breast cancer after surgery. REUTERS