STOXX 600 hits over one-week low on Fed hike bets, tech selloff

The STOXX 600 index fell 1.3% to a one-week low, driven by concerns over interest rate hikes and decreased enthusiasm for artificial intelligence stocks.

Europe's benchmark STOXX 600 fell to a more than one-week low on Tuesday, as expectations for imminent interest rate hikes by the ‌Federal Reserve and concerns around increased corporate spending on AI dented sentiment.

The pan-European index fell 1.3% to 631.06 points - its lowest since June 12 - by 0828 GMT, with most sectors trading in negative territory. The tech sector fell 3.4% and was on course for its biggest daily drop since February ‌as investors globally reassessed companies that rallied earlier this quarter on enthusiasm over artificial intelligence.

Stocks in Asia fell earlier in the day and ‌those on Wall Street declined sharply in premarket trading. Crude oil fell 1% while gold slipped more than 2%. European chipmakers Infineon and STMicroelectronics declined 5.7% and 7.5%, respectively, while semiconductor equipment makers ASML and Aixtron slipped more than 5% each.

Tech stocks in the region have been the biggest gainers among major sectors this quarter. However, as borrowing costs tick higher, ⁠corporates ​banking on debt-backed spending are likely to ⁠come under pressure. Infineon and STMicroelectronics are among those that have recently tapped the debt markets. "If...the companies need to continue raising debt before they're earning sufficient returns on ⁠that investment, then investors could start to question the profile of the debt and the potential earnings sustainability on the equity side," said Kiran Ganesh, managing director, global ​head of investment communications at UBS.

"This debt issuance is a trend that investors will need to keep watching out for the ⁠next one or two years." The outlook for U.S. monetary policy has tightened as investors expect Federal Reserve Chair Kevin Warsh to combat inflation pressures stemming from higher energy costs and tariffs.

Traders ⁠now ​forecast the Fed will hike interest rates by 50 basis points by the end of this year, according to the CME Group's FedWatch Tool. Markets are also holding on to bets that the ECB will lift borrowing costs by another 25 bps later this year, ⁠according to LSEG-compiled data. European mining shares fell 4.5%, tracking declines in precious metal prices.

Among others, Signify plunged 15.2% after the world's largest lighting company ⁠updated its strategy to target an ⁠adjusted EBITA margin of around 10% by 2029. Heineken shares rose 2.7% after the Dutch brewer appointed Rafael Oliveira as its new CEO, replacing Dolf van den Brink, who resigned from the company earlier this year ‌amid an industry-wide slump ‌in sales.