European stocks drops to two-week low on higher bond yields, Middle East uncertainty

EUROPE’S benchmark Stoxx 600 fell to a more than two-week low on Tuesday (Aug 18), as investors grappled with higher bond yields and renewed inflation concerns, while US President Donald Trump’s denial of talks with Iran added to geopolitical uncertainty.

The pan-European Stoxx 600 closed 0.69 per cent lower at 651.90 points, and had its worst day in nearly a month.

Global bond yields surged and hit multi-year highs on Tuesday as a stalemate in the Middle East, renewed inflation worries, and concerns over fiscal health spooked investors.

Germany’s 10-year Bund yield rose more than 1 basis point to 3.2610 per cent, its highest since April 2011.

“The selloff reflects more than just inflation expectations: real yields and term premia are rising as governments issue more debt, pension demand weakens, and private investors become more price-sensitive,” said Geoff Yu, senior EMEA market strategist at BNY.

Higher government borrowing costs weighed on tech stocks , with elevated yields potentially lowering the present value of future profits. The sector led losses on the Stoxx 600, falling 2.5 per cent, as chipmaker Infineon and chip-equipment manufacturer Aixtron slid 7.6 per cent and 8.8 per cent, respectively.

Meanwhile, the energy sector gained 0.4 per cent as oil traded at a three-week high, with Iran signalling a more offensive stance and Trump denying talks with Teheran.

Middle East uncertainty continues to cloud economic outlook for Europe, which relies heavily on imports to meet its energy needs.

“Markets are focused on whether Europe can replenish its gas storage at reasonable prices ahead of winter, with current inventory levels and costs remaining a key source of uncertainty,” said Gordon Kerr, European macro strategist at KBRA.

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Markets are also awaiting minutes from the Federal Reserve’s July meeting, for clues on the central bank’s monetary policy path.

Separately, German investor morale rose more than expected to 34.2 points in August, the ZEW economic research institute said on Tuesday.

Among individual movers, optical connectivity products maker Huber+Suhner plunged 11.4 per cent following weaker-than-expected core profit and communications unit orders, putting the stock on track for its worst day since March 2019.

H&M topped the benchmark, climbing 4.1 per cent after an executive disclosed the purchase of 8,000 shares in the company.

Coloplast advanced 3 per cent after the medical equipment maker said it expects its Kerecis wound-care business to return to growth from January 2027. The broader healthcare shares led sectoral gains, rising 1.2 per cent. REUTERS