European stocks slide as Fed rate hike bets hit tech

STOXX 600 futures dropped as DAX and CAC 40 contracts also declined, with Fed rate hike expectations weighing on sentiment.reuters
The selloff reverses a strong quarter for European tech, which surged on AI optimism after SoftBank pledged €45 billion in French AI investment.tradingeconomics
Japan’s Nikkei 225 snapped an eight-day winning streak and S&P 500 futures dipped as the global tech rout spread from Wall Street.reuters

European Tech Stocks Fall as AI Momentum Cools and Rate Fears Rise

European equities were set to open sharply lower on Tuesday as rising expectations for Federal Reserve interest rate hikes combined with cooling enthusiasm for artificial intelligence spending to weigh on investor sentiment across the continent.

Fed Rate Bets and Tech Weakness Drive Declines

Futures linked to the pan-European STOXX 600 fell 1.1% ahead of Tuesday’s open, according to Reuters, while Germany’s DAX futures declined 1% and France’s CAC 40 contracts dropped 0.8%. The CME Group’s FedWatch Tool showed traders pricing in a cumulative 50 basis points of rate increases by year-end as the central bank confronts inflationary pressures driven partly by rising energy costs.reuters

European technology shares were expected to face particular headwinds, following declines across Asia and among major Wall Street firms late on Monday. Japan’s Nikkei 225 fell 1.2%, snapping an eight-day winning streak, while S&P 500 e-mini futures dipped 0.5%.reuters

Reversal After Strong Quarter for AI-Linked Names

The selloff marks a reversal for European tech stocks, which had been among the best-performing sectors earlier in the quarter as investors bet heavily on artificial intelligence infrastructure. The STOXX 600 hit a record high as recently as June 15, buoyed by a relief rally following a preliminary U.S.-Iran peace deal. Earlier in June, SAP and Schneider Electric had outperformed the broader market after SoftBank pledged €45 billion in AI investment in France.reuters

However, as borrowing costs rise, companies relying on debt-financed AI spending face increasing difficulties. The global tech sector has experienced multiple bouts of selling pressure this month, with a sharp AI stock selloff on June 10 dragging the S&P 500 down 1.6% and the Nasdaq Composite down 2%.apnews

Broader Market Context

The prospect of tighter monetary policy has complicated the outlook for growth-oriented sectors that had driven market gains. South Korea’s KOSPI plunged more than 4.5% during an earlier wave of selling in early June after strong U.S. employment data bolstered rate-hike expectations. Basic materials stocks also face pressure alongside technology, as higher rates increase the cost of capital for resource-intensive industries.reuters