European shares fall to 3-month low amid geopolitical concerns!
European stock markets hit three-month lows, fueled by a broad-based sell-off after Ukraine's unprecedented attack on a Russian military base using US-made long-range missiles. Russia's subsequent threat to lower the threshold for using nuclear weapons added to market concerns.
The Euro-Pan Stoxx 600 index fell 1% in early session, hitting levels last seen on August 8, before paring losses to close 0.45% lower. Major indices mirrored the decline, with Germany's DAX and France's CAC 40 both down 0.67%, while Spain's IBEX 35 fell 0.74%.
Energy markets reacted sharply to fears that Ukraine could target Russia's oil and gas infrastructure, potentially disrupting global supply. Brent and WTI crude prices both rose 3%, while natural gas futures rose 3.8%, hitting a one-year high before paring some gains.
Michael McCarthy, chief market strategist at Moomoo, predicted further volatility: "You think the fix is coming, but the situation is likely to get worse first. Oil and gas prices are likely to be affected by increases over the next few weeks. "
Geopolitical uncertainties fueled demand for safe-haven assets. COMEX gold futures rose 0.63% on Tuesday, extending their gains in the Asian session and reaching $2,644 an ounce - a one-week high - by 3:45 a.m. morning CET. Similarly, 10-year German government bond prices rose sharply, with yields falling 10 basis points to the lowest level in nearly a month before recovering slightly.
The banking sector bore the brunt of the selling, as fears of an all-out war raised concerns about Europe's public finances. The Stoxx Euro 600 banking index fell 1.4%, with UniCredit shares falling 5% on the day before recovering to close 2.3% lower. Banco Santander and BNP Paribas also posted losses of 1.57% and 1.84%, respectively.
Consumer stocks were similarly affected, with LVMH and Nestlé each falling 1.9%, and L'Oréal down 0.9%. Worries about a possible escalation in the Ukraine-Russia conflict that would affect China's biggest market for luxury goods in Europe added to the sector's woes.
In contrast to the broader sell-off, European defense stocks rose as geopolitical tensions rose. Shares in Rheinmetall AG and SAAB AB rose more than 3%, while Thales gained 1.68%. Defense stocks have been boosted by Donald Trump's US election victory, with the STOXX Europe Aerospace & Defense index rising 4.3% in November. Concerns about reduced US funding for Ukraine have fueled expectations of increased European defense spending.
Rheinmetall AG, Germany's leading munitions maker, has seen its stock rise 30% since US Election Day, marking a 109% year-to-date rally. In its presentation at Capital Markets Day, the company outlined ambitious growth plans, aiming for €20 billion in sales by 2027.
The euro initially fell sharply against the US dollar, but managed to hold steady on Tuesday. As of Wednesday's Asian session, the EUR/USD pair was trading at 1.0590, with risk sentiment continuing to weigh on the common currency.
The yield spread between US and German 10-year government bonds widened to the highest level since April, making the US dollar more attractive than the euro. Analysts warn that the euro could fall to parity with the dollar if geopolitical tensions continue along with Trump's return to the White House.
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