European shares slip on AI slowdown calls and inflation concerns

European equities declined on Monday (Sep 14) due to technology stocks facing pressure from top AI firms advocating for a slower development pace, alongside soaring oil prices and rising global bond yields dampening overall risk appetite. The Stoxx 600 index in Europe decreased by 0.5 percent to 635.99 points. Most regional markets dropped, with London’s and Zurich’s indexes up by 0.4 percent and 0.8 percent, respectively.

Technology stocks saw the steepest losses, with a 2.1 percent decline as AI-related shares slipped globally. Anthropic CEO Dario Amodei advocated for a slowdown in AI model capabilities due to misuse concerns, echoing the sentiments of xAI's Elon Musk and OpenAI's Sam Altman. The stoxx 600's worst performer was chipmaker Soitec, which dropped by 12.5 percent.

Conversely, software companies such as Octave Intelligence, Capgemini, Sage, and Relx experienced gains, ranging from 5 to 7.5 percent. Chris Beauchamp, a chief market analyst at IG, noted that these stocks were hit by the "SAASpocalypse," an acronym for concerns that AI would eliminate their businesses. However, he suggested that if the AI giants slow down, the outlook for revenue for companies like Sage and RELX and their SaaS counterparts globally would improve, even though it might delay a longer-term loss.

European miners experienced a 2.5 percent decline, as base and precious metal miners tracked weakness in commodity prices. Healthcare stocks, however, rose by 2.7 percent, with GSK increasing by 4.7 percent following positive trial results for two lung cancer drugs, further fueling the sector's momentum. Energy stocks fell by 0.8 percent, though crude prices surged by 2 percent following strikes on Saudi energy infrastructure and attacks on ships in the Middle East, heightening supply concerns.

The recent oil spike has raised inflation worries, suggesting that central banks worldwide could raise interest rates this year. European economies are especially sensitive to rising oil prices as they depend heavily on imports. ECB policymakers warned on Monday that euro zone inflation could surpass high expectations, and traders now anticipate at least one more 25-basis-point increase in ECB rates by the end of the year, following last week's rate hike.

The developments led to a surge in government bond yields, with the 10-year German Bund, the region's benchmark, reaching its highest level since mid-2009. Meanwhile, US benchmark 10-year Treasury yields climbed to the psychologically significant level of 5 percent. This week, the US Federal Reserve is expected to raise its primary lending rate by at least 25 basis points, in contrast to a split decision between a hike and a pause just a week ago.

Separately, Sweden's center-left opposition appeared most likely to gain power after a tight election that weakened the far-right's influence.