STOXX 600 drops to two-week low on higher bond yields, Middle East uncertainty

Europe's STOXX 600 index plummeted to a two-week low on Tuesday, as investors faced rising bond yields and renewed concerns over inflation alongside geopolitical tensions. The pan-European index closed 0.69% lower at 651.90 points, marking its worst day in nearly a month. Global bond yields surged to multi-year highs due to a Middle East stalemate, inflation worries, and fiscal health concerns.

Germany's 10-year Bund yield surged to 3.2610%, its highest level since April 2011. The sell-off affected tech stocks, with the sector slipping 2.5%, as higher yields lowered the present value of future profits. Chipmaker Infineon and Aixtron saw declines of 7.6% and 8.8%, respectively. Meanwhile, the energy sector rose 0.4%, benefiting from oil pricing at a three-week high.

Middle East uncertainty looms over Europe's economic outlook, as the region is a key energy importer. Investors now focus on whether Europe can replenish its gas storage before winter, with current inventory and costs remaining a key source of uncertainty. Federal Reserve minutes from its July meeting are awaited for insights into the central bank's monetary policy direction.

In domestic news, German investor sentiment improved more than expected in August, reaching 34.2 points. Huber+Suhner, an optical connectivity firm, fell 11.4% after weaker-than-expected profit and orders, signaling its worst day since March 2019. H&M led benchmark gains, advancing 4.1% after a leader purchased 8,000 shares. Coloplast increased 3% after predicting its Kerecis wound-care business will return to growth in 2027, and broader healthcare shares rose 1.2%.