European stock markets remained largely flat on Wednesday as Middle East tensions kept investors cautious ahead of the Federal Reserve's July meeting minutes. According to Reuters, the pan-European STOXX 600 was flat at 652.07 as of 0715 GMT, as gains in basic resources stocks, supported by higher gold prices, helped offset weakness in technology shares. The minutes could offer additional insight into policymakers' views on inflation, economic growth and the timing of potential rate cuts, with investors balancing hopes for lower interest rates against renewed inflationary pressures and geopolitical risks.
Basic resources stocks rose 0.6%, tracking gains in gold prices as investors awaited the Fed minutes for further signals on the U.S. central bank's interest-rate outlook. However, technology stocks were the weakest-performing major sector, falling 0.4% as a sell-off in government bonds pushed yields higher. Higher bond yields can weigh on technology and other growth-oriented companies because they increase the discount rate applied to future earnings. Semiconductor stocks also came under pressure after reports that Anthropic's annual revenue run-rate reached $65 billion at the end of July failed to satisfy some elevated investor expectations, with Soitec leading sector losses by falling 4.4%, while Nordic Semiconductor and Scout24 declined between 2.1% and 2.3%.
Geopolitical uncertainty remained a key concern for markets after U.S. President Donald Trump said on Tuesday that no talks were taking place with Iran and maintained that the Strait of Hormuz remained open. The comments contradicted Iran's assertion that the strategically important waterway was closed to shipping, according to Reuters. Any disruption to traffic through the Strait of Hormuz could have significant implications for global energy markets because the route is critical for oil shipments. Higher energy prices have already added to concerns over inflation and the outlook for interest rates, increasing the sensitivity of equity markets to developments in the region.
In Britain, annual consumer price inflation accelerated to 2.9% in July from 2.6% in June, which had been a 15-month low. The increase adds to uncertainty over the Bank of England's monetary-policy outlook as investors assess the pace at which borrowing costs could be reduced. Higher inflation could make policymakers more cautious about further easing, with European markets balancing these concerns against the broader economic resilience that has supported recent gains.
Investors began reallocating their portfolios, moving away from stocks related to artificial intelligence. According to The Economic Times, the relatively smaller tech exposure in Europe has worked in the region's favour, as global investors look to the region while diversifying their portfolios away from AI-related stocks. Laurent Clavel, global head of multi-asset at AXA Investment Managers, noted that this has led to broadening European equity exposure in multi-asset portfolios, taking profit on the incredible ride of European financials and broadening to all sectors across Europe. BNP Paribas Asset Management has also been expanding European equity exposure, as reported by Reuters. "This has led us to broaden our European equity exposure in multi-asset portfolios, taking profit on the incredible ride of European financials and broadening to all sectors across Europe," Clavel said.
