European shares declined on Wednesday after an overnight Wall Street sell-off. Futures for key indexes in Europe declined before markets opened. The pan-European STOXX 600 index dropped 0.1% to close a three-day winning streak. Germany’s DAX index declined by 0.3%, after setting a record high the previous day. Investors remained concerned with the prospect of more growth slowing due to tariffs, and Wall Street’s equity indices dropped as well. The S&P 500 fell 1.1%, and tech shares got hit especially hard, with Nasdaq declining 1.7%. Futures pointed to a subdued beginning on Wall Street with S&P contracts rising 0.1%.
European equities had already surprised to the upside on defense spending plans against President Trump’s more protectionist agenda, big fiscal reforms in Germany, and expectations of a de-escalation of hostilities in Ukraine. But experts say Wednesday’s modest decline in European equities could be from frustration with the Ukrainian peace process, particularly after Russian President Vladimir Putin’s failure to support a full 30-day ceasefire.
In the foreign exchange market, the dollar index increased 0.25% to 103.57, after it fell to a five-month low yesterday. The dollar also appreciated against the yen after the Bank of Japan left its policy rates unchanged. The spotlight now turns to the U.S. Federal Reserve, with rates seen remaining between 4.25%-4.50%, but with some predictions looking at a July rate cut.
At the same time, Turkish assets plummeted after the government arrested Istanbul’s mayor Ekrem Imamoglu, President Tayyip Erdogan’s chief political opponent. Imamoglu’s arrest on corruption and supporting a terrorist organization charges precipitated a swift sell-off of Turkish stocks, bonds, and the lira. The Turkish lira plunged 5%, its largest fall since June 2023, as investors responded to increased political risk in the nation. Turkey’s key stock market index declined 6%, and government bond yields fell. Monex Europe’s head of macro research, Nick Rees, said that “Traders had become increasingly complacent, and that spell has now been broken,” resulting in the lira’s sharp sell-off.
