European equities edged higher on Wednesday, with the pan-European STOXX 600 index gaining 0.35% as investors awaited major US tech earnings and Federal Reserve policy signals. As per Reuters, the modest rally came despite nervousness about technology stocks ahead of upcoming US Big Tech earnings reports. The market's cautious approach reflects investor concerns about capital expenditure in data centres, particularly related to AI, with the reporting season being overshadowed by developments in the Middle East crisis.
Energy stocks emerged as the primary driver of the market's gains, rising 1.6% following a 3% jump in Brent crude to over $86 a barrel. Mining shares also contributed significantly, climbing 1.5% as higher oil prices supported commodity-linked sectors through stronger cash flows. The energy sector's outperformance came as US and Saudi Arabian strikes in Iraq threatened to escalate the ongoing US-Iran conflict, creating geopolitical tensions that boosted commodity prices. Glencore rose 3% after its first-half copper production increased 15% on higher grades at key operations, while UBS added 3% after booking a 17% jump in second-quarter profit and announcing plans to buy back shares worth $3 billion by the middle of next year.
Technology stocks faced continued pressure, falling 0.4% even as the overall market managed modest gains. The sector decline was triggered by South Korean chipmaker SK Hynix reporting bumper quarterly results but falling short of lofty investor expectations, heightening market concerns about slower AI spending by big tech firms. Investors remain particularly focused on upcoming earnings from Microsoft and Meta, with markets laser-focussed on evidence of returns on their AI investments. The technology sector weakness added to broader investor concerns about the sustainability of current AI investment levels across major tech companies, with higher oil prices potentially pressuring rate-sensitive parts of the market if investors start pricing in stickier inflation and higher yields.
Kering jumped 11%, on track for its biggest one-day gain in over a year, after second-quarter sales at its flagship brand Gucci fell less than expected. The luxury goods rally provided support to LVMH, which reported a 3% rise in its sales on Tuesday - a sign that demand for luxury goods remains resilient amid the US-Iran conflict. The strong performance in personal and household goods stocks rose 1.2%, driven by the Kering surge, with the luxury goods sector benefiting from continued consumer demand despite geopolitical uncertainties.
With the European earnings season underway, market participants remained focused on a mix of corporate results and macroeconomic indicators, as reported by Reuters. The US Federal Reserve is not expected to make any changes to monetary policy on Wednesday, but its chief Kevin Warsh's policy statement will be parsed for any hints on the central bank's next likely move. Among other notable movers, French IT group Sopra Steria soared 14% after raising its full-year revenue growth target, making it the biggest percentage gainer on the STOXX 600. However, Aberdeen lost 6% after posting £3 billion ($4 billion) in outflows in the first half of the year, compared with expectations of £800 million in inflows. For investors reading the index as a risk-on signal, the sector mix matters as much as the headline gain, with commodity-linked sectors doing the heavy lifting while technology leadership shifts underneath.
