European shares close lower after rally, as concerns over US Fed rates and Iran peace deal linger

EUROPEAN shares slipped on Wednesday (Jul 1), after a strong finish to the second quarter, as investors assessed indications that US interest rates could stay higher for longer, and the progress of US-Iran peace talks.

The pan-European Stoxx 600 index closed 0.4 per cent lower after logging its strongest quarter since October 2020 in the previous session.

The Stoxx tech index pulled back 1.2 per cent after logging its strongest quarterly performance since late 2001 in the previous session, with valuations now at par with US Wall Street rivals.

Chip equipment maker ASML dropped 4.6 per cent, while semiconductor stock Soitc slipped marginally.

AI equipment maker Schneider Electric lost 3.1 per cent after signing an agreement to acquire Cognite Holding, a privately held AI software and industrial data provider, for US$3.1 billion in an all-cash deal.

“We still like the tech sector even going forward... It will keep being some sort of a driver, both in terms of earnings growth and performance,” said Luca Fina, head of active equity at Generali Asset Management.

Fina expects the earnings growth differential between European and US stocks to narrow in the upcoming quarters, potentially bringing back international flows and powering strong performances in Europe.

Meanwhile, US Federal Reserve Chair Kevin Warsh said at the European Central Bank’s Sintra conference that policymakers will decide whether to raise interest rates when they begin their next meeting, reiterating his stance on not giving forward guidance.

“What’s troubling investors is the prospect of a rate hike at the end of the year,” said Dan Coatsworth, head of markets at AJ Bell.

SEE ALSO

Warsh says inflation risks have come down, vows price stability

US Wall Street ends choppy session lower as tech shares drop

Trump says the US and Iran getting along very well

Coatsworth said markets continued to hunt for any “morsel” of information despite Warsh’s determination not to guide on rates.

Traders anticipate both the US Fed and the ECB lifting interest rates by at least 25 basis points later in 2026, LSEG-compiled data showed. While crude oil prices have fallen back to pre-Iran-war levels, concerns remain that inflation pressures will linger.

The US and Iran held indirect technical talks in Doha, seeking to agree on the flow of shipping through the Strait of Hormuz and secure a lasting ceasefire, a source with direct knowledge of the talks and an Iranian official said.

Among stocks, Primark owner Associated British Foods slipped 3.2 per cent after saying it still expects annual profit to be below the prior year’s outcome.

Swedish defence equipment maker Saab gained 3.3 per cent after signing a contract to deliver 16 Gripen E fighter aircraft to Ukraine in a deal worth about 24.6 billion Swedish crowns (about S$3.3 billion).

Paris-listed shares in SES topped the Stoxx 600 gainers with a 10 per cent rise after the US Federal Communications Commission said it would vote on setting up a new spectrum auction in 2027, which analysts say is positive for the company. REUTERS