European stocks declined on Tuesday following a 7% drop in chipmaker Nvidia, which also affected U.S. tech companies. This reflects concerns about the artificial intelligence industry. Despite this, stock markets remained near record highs as investors shifted their focus from flashy names to more stable options. Bond yields cooled, and the Japanese yen continued to be under pressure.
Investors are currently focused on several events, including snap elections in France, the first U.S. Presidential debate, and the release of the Federal Reserve’s preferred gauge of inflation. Nvidia’s shares dropped 13% over the last three days, causing Europe’s benchmark STOXX 600 index to slip by 0.3% in early trading, with the STOXX tech index down by 1.5%. Germany’s DAX stock index was 1.2% lower, while Britain’s FTSE 100 remained flat. Additionally, a weak earnings update from airplane-maker Airbus also weighed on European shares.
The drop in Nvidia’s shares also impacted the Nasdaq 100, which fell by 1.1%, and the S&P 500, which dropped by 0.5% on Monday. In contrast, the Dow Jones rose by 0.7% as investors shifted their focus to companies in sectors like energy and utilities, which are perceived as better value. Equity indices in the U.S. and Europe remain close to record highs despite the recent dip, driven by excitement over the potential of AI and hopes for falling interest rates. In terms of futures, U.S. futures showed little change on Tuesday morning in Europe.
Meanwhile, Japan’s Nikkei 225 stock index climbed 0.95% overnight, while China’s CSI300 fell by 0.54%. Bond markets remained steady on Tuesday, with traders awaiting the U.S. personal consumption expenditures (PCE) inflation report. The Fed’s favored measure, PCE inflation, is expected to have decreased to 2.6% year-on-year in May from 2.7% in April. The yield on the 10-year U.S. Treasury was last down 1 basis point at 4.24%. The yen was closely monitored by traders for signs of further intervention from Japanese authorities amid trading around a two-month low of 160 to the dollar. It hit a record low against the euro of 171.49 on Monday due to lower interest rates in Japan compared to the U.S. and Europe.
The dollar index, which measures the currency against six major peers, remained flat at 105.47, slightly down from a two-month high on Friday. Oil prices were relatively unchanged on Tuesday, with Brent futures holding at $86.06 a barrel after reaching $86.23 overnight, marking the highest level since the beginning of May.