European Stocks Slide as ECB Hawkishness, Oil Surge Weigh on Markets

European stocks posted their steepest one-day drop in over two weeks on Thursday, rattled by a hawkish shift from the European Central Bank, a surge in oil prices above $100 a barrel, and mounting pressure from rising bond yields that punished technology shares.

The pan-European Stoxx 600 index fell 1.3% to 638.5 points, according to multiple reports. The UK’s FTSE 100 declined 0.73%, Germany’s DAX tumbled 1.56%, and France’s CAC 40 shed 1.64%, as reported by Nasdaq.

The ECB left interest rates unchanged as expected, with the deposit rate at 2.25%, the refinancing rate at 2.4%, and the marginal lending rate at 2.65%. However, markets interpreted post-decision comments from President Christine Lagarde as suggestive of a potential rate hike at the September meeting. Lagarde noted that a move today was discussed and that the full impact of the energy shock from the Middle East conflict has yet to be felt, according to a report on channelnewsasia.com. The ECB acknowledged that the situation remains “highly uncertain,” according to Nasdaq.

Rates traders are now pricing in a 70% chance of a September hike and anticipate around 75 basis points of total tightening over the next year, the channelnewsasia report added.

Oil prices surged, compounding inflation fears. Brent crude futures hit $100 a barrel on Thursday for the first time since May, after Yemen’s Houthis said they had attacked two Saudi oil tankers in the Red Sea, according to a Reuters report on Businesstimes. Brent later rose to $101.22 a barrel, gaining more than 7%, Nasdaq reported. West Texas Intermediate crude climbed above $90 a barrel. The surge lifted European energy shares 1.54%, with TotalEnergies gaining 2.5% after reporting its strongest quarterly earnings in nearly three years.

The rise in oil prices pushed bond yields higher. Two-year German yields hit their highest level in two years, while U.S. Treasury yields reached their highest in 18 months, according to channelnewsasia. The 30-year U.S. real yield touched its highest since 2008, nudging 3%. European natural gas prices have also surged 60% in the last month, the report added.

Technology stocks bore the brunt of the selloff, with the sector index falling 2.9%. STMicroelectronics tumbled 17.7% after the chipmaker forecast third-quarter revenue slightly below market expectations, Businesstimes reported. BE Semiconductor dropped 7.3% after its second-quarter results, while Infineon plunged more than 6% in Germany, according to Nasdaq. Soitec bucked the trend, surging nearly 22% after its quarterly revenue beat expectations.

Investor sentiment toward tech has soured as concerns over elevated valuations clash with rising spending on artificial intelligence infrastructure. Alphabet’s free cash flow in the first quarter turned negative for the first time since the company floated more than 20 years ago, and Tesla’s free cash flow turned negative for the first time in two years, channelnewsasia reported. “You’re seeing more questions being asked about where’s the future revenue going to come from,” said Rushabh Amin, multi-asset portfolio manager at Allspring Global Investments, as quoted by Reuters on Businesstimes. “Even if you have decent earnings, there is a kind of drag coming from a slight unwind in sentiment and in positioning.”

The food and beverage index fell 4.1%, weighed down by Nestle, whose shares tumbled nearly 8% — their biggest loss since 1989, according to Reuters. The company raised its full-year organic sales outlook but said it would sell part of its water and premium beverages business to Platinum Equity.

Elsewhere, budget airline easyJet rose 2.7% despite reporting a 70% drop in third-quarter profit, as it flagged strong summer demand. Finnish forestry group Stora Enso fell about 8.5% after reporting quarterly operating profit below market expectations, Reuters reported. In the UK, Centrica dropped more than 10% after saying it would cut 1,300 jobs following an 18% fall in half-year profit, according to Nasdaq.

The selloff was not confined to Europe. U.S. stocks also slumped, with the S&P 500 falling 1.2% and the Nasdaq dropping 2.2%, as rising bond yields and Big Tech earnings concerns weighed on Wall Street, according to channelnewsasia.