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European stocks dropped sharply on Tuesday, driven by growing fears of an escalation in the Israel-Iran conflict and anticipation surrounding the Federal Reserve’s upcoming two-day meeting.
As of 03:05 ET (07:05 GMT), the DAX index in Germany fell by 1%, the CAC 40 in France dropped 0.8%, and the FTSE 100 in the U.K. lost 0.5%.
Israel-Iran Conflict Hits Sentiment
Global market sentiment took a hit as Israel and Iran continued their attacks on each other, with the conflict entering its fifth day. President Donald Trump called for Iranians to evacuate Tehran, after cutting short his participation in the Group of Seven (G7) summit. This move heightened concerns about the potential for U.S. involvement in the conflict, although White House officials clarified that the U.S. would not directly engage in the fighting.
U.S. Defense Secretary Pete Hegseth noted that while Trump aims for a deal with Iran concerning its nuclear activities, the U.S. would defend its assets in the region, adding to market uncertainties.
G7 Support for Israel Amid Tensions
In a statement issued late Monday, the G7 nations expressed their support for Israel and labeled Iran as a source of instability in the Middle East. The summit also saw Trump and British Prime Minister Keir Starmer announce a finalized trade deal between the U.S. and the U.K., focusing on auto tariffs and aerospace agreements, though no details were provided.
Focus Shifts to Federal Reserve Meeting
The focus is now turning to the Federal Reserve’s two-day policy meeting, which begins later today. The U.S. central bank is widely expected to maintain the federal funds rate in the range of 4.25%-4.50% when it announces its decision on Wednesday.
Investors will be looking for any signals regarding future rate cuts, particularly in light of recent market uncertainty driven by trade tensions and concerns over economic growth. Trump’s administration’s chaotic trade policies remain a point of uncertainty, influencing the Fed’s stance.
Bank of Japan Decision and European Central Bank Meetings
Earlier on Tuesday, the Bank of Japan held interest rates steady, as widely expected, and announced it would continue to purchase government bonds over the next two years, albeit at a slower pace starting in 2026.
Several other major European central banks, including the Bank of England, Norges Bank, the Riksbank, and the Swiss National Bank, will hold meetings this week, adding to market expectations for potential shifts in monetary policy across the region.
Renault in the Spotlight Amid CEO Search
In corporate news, Renault (EPA:RENA) faced scrutiny following the abrupt departure of Luca de Meo as CEO of the troubled automaker. Shares of Renault dropped as much as 8% on Monday, marking their biggest one-day percentage decline since February 2022.
Analysts have named longtime Renault insider Denis Le Vot and Maxime Picat of rival Stellantis (NYSE:STLA) as potential candidates to succeed de Meo, further fueling uncertainty surrounding the company’s leadership.
Conclusion
European stocks are under pressure as the Israel-Iran conflict intensifies, overshadowing broader market sentiment. Investors are also closely watching the Federal Reserve’s meeting for clues on interest rate policy and potential future rate cuts. With key central bank meetings this week, as well as corporate news like Renault’s leadership shakeup, market volatility is expected to persist as these developments unfold.
