European shares opened lower on Friday and were on track to post weekly losses as escalating tensions in the Middle East and a broad selloff in global technology stocks dampened investor sentiment. The pan-European STOXX 600 index fell 0.34% to 641.53 points, with weakness across most major sectors. The latest round of tensions has intensified following Iran's announcement of fresh attacks on U.S. facilities in the Gulf, pushing oil prices higher and adding to concerns over the global economic outlook. The benchmark index was largely unchanged for the week as investors continued to rotate out of semiconductor stocks amid concerns over stretched valuations following a strong rally earlier this year.
Technology stocks led the declines in Europe, with the sector dropping 3.27% this week despite upbeat forecasts from major industry players. French chip materials supplier Soitec fell 3.6%, while semiconductor equipment makers ASMI and ASML each declined more than 4%. The weakness came despite optimistic outlooks from Dutch chip equipment maker ASML and Taiwan Semiconductor Manufacturing Co. (TSMC), with the optimistic forecasts failing to prevent selling pressure across Asian, U.S. and European markets. The tech-heavy Nasdaq dropped 0.98%, while Taiwanese equities, a major AI beneficiary, dropped 6.47% this week. The subdued reaction underscores the high bar companies have to clear to lure investors into equities, at a time when sentiment towards major AI winners has soured and uncertainty over inflation persists.
Investors have increasingly shifted focus toward defensive sectors that have demonstrated resilience during the current market volatility. Utilities stocks rose 1.55% and were the biggest gainers on the European benchmark on Friday, while luxury were the best-performing sector for the week. Swedish defence and aerospace company Saab climbed 9.73% after reporting a bigger-than-expected increase in second-quarter operating profit, with Reuters attributing the earnings growth to solid demand across the company's key markets. Norwegian recycling technology company Tomra Systems jumped 11.87% after upbeat quarterly results, while private equity firm EQT gained 11.02% after Australia's Perpetual rejected a sweetened A$2.5 billion takeover proposal from the Swedish company. However, Britain's Burberry slipped 6.38% after the luxury group said the Middle East conflict had weighed on tourist spending in Europe.
Among individual movers, Volvo Group dipped 0.64% even after the Swedish truckmaker reported a 35% jump in second-quarter profit. Swedish tech company Lagercrantz slid 7.09% on downbeat quarterly core earnings. ABB declined 1% after announcing a $5.5 billion acquisition of UK-based automation company Rotork, even as the Swiss engineering group reported second-quarter operating profit that exceeded market expectations. The market backdrop has been complicated by rising oil prices stemming from the escalating Middle East conflict, and lacklustre reactions even to strong earnings this week, with investors having hoped that solid results would direct attention away from geopolitics and towards corporate fundamentals.
Geopolitical tensions remained in focus after Iran said it had launched fresh attacks on U.S. facilities in the Gulf, a development that pushed oil prices higher and added to concerns over the global economic outlook. "There is clearly a real disconnect between what Iran believes it can achieve and what the U.S. wants. That is causing some dissonance in markets," said Steven Schoenfeld, CEO of MarketVector Indexes. The latest escalation has intensified following a third consecutive night of U.S. strikes against Iran, with President Trump announcing a blockade on Iranian shipping and a 20% fee on cargo passing through the Strait of Hormuz. Market sentiment weakened as Brent crude prices hovered near $85 a barrel, raising fears of higher energy costs and persistent inflationary pressures that could influence global monetary policy. The ongoing tensions continue to weigh on investor confidence and contribute to the cautious tone across European markets despite resilient earnings and continued deal-making activity.
