European stock markets closed lower across the board on October 23, as social unrest and a fiscal crisis in France, concerns over artificial intelligence infrastructure financing, and persistently rising international oil prices collectively weighed on market risk appetite.
The pan-European STOXX 600 index fell 0.3%, bringing its cumulative weekly decline to more than 1%. France's CAC 40 index dropped 0.4% to touch a near two-week low, Germany's DAX index declined 0.9%, and the UK's FTSE 100 index fell 0.6%.
Earlier, European stocks had already suffered their largest single-day drop in nearly three weeks on Thursday, with banking shares serving as the main drag.
Meanwhile, the yield on France's 10-year government bond briefly broke above 5% during the week, reaching its highest level since 2002.
French Riots Combined with Budget Deadlock Push 10-Year Bond Yield to 24-Year High
France became the epicenter of turbulence in European financial markets this week.
After large-scale riots and looting occurred last weekend, French authorities imposed curfews on Monday in parts of Paris, Lille, and Nice.
With more nationwide demonstrations planned for Saturday, the government is preparing to deploy additional troops to assist police in maintaining order.
Persistent social unrest, compounded by the French government's budget deadlock, further eroded investor confidence.
The CAC 40 index posted its largest single-day decline since early October on Thursday, and the French government bond market also saw significant selling pressure.
On Wednesday, the yield on France's 10-year government bond briefly exceeded 5%, reaching that level for the first time since 2002.
As investors reduced their exposure to French assets, funds shifted toward traditional safe-haven assets such as German government bonds and US Treasuries.
Capital Economics believes that the yield premium of French government bonds relative to those of other eurozone countries could widen further in the coming months, meaning the market may continue to demand higher risk compensation.
Economic data also added to market concerns. Data released on Friday showed that French business activity unexpectedly contracted in October, indicating that beyond political and fiscal uncertainty, the real economy is also facing growth pressures.
AI Capital Expenditure Concerns Trigger Broad Decline in European Semiconductor Stocks
The global selloff in AI-related stocks spread further to Europe this week.
Semiconductor companies including ASML, Infineon, and STMicroelectronics came under pressure, with their shares posting notable declines.
The core of investor concern has shifted from whether AI demand is strong to whether companies can continue to secure sufficient funding to support increasingly massive computing power and data center construction.
Although SAP, BE Semiconductor, and Meta Platforms recently reported solid results, these failed to effectively ease market doubts about the scale of AI investment, financing costs, and long-term returns.
As technology companies continue to expand capital expenditure, the market has begun to reassess valuations across the entire AI supply chain.
Semiconductor equipment and infrastructure suppliers in particular, while potentially benefiting from growing computing power demand, remain highly dependent on whether their customers can sustain large-scale investment for their future performance.
Volvo Cars Plunges Over 27%, Kering Tumbles, Holcim Defies Trend with 5% Gain
Corporate earnings further intensified divergence in European stock markets.
Swedish automaker Volvo Cars reported a third-quarter operating loss that exceeded market expectations, sending its shares plunging more than 27% to a record low, making it one of the worst-performing large European stocks of the day.
Luxury group Kering saw its shares drop more than 10%. Third-quarter sales at its core brand Gucci declined, dealing a blow to investor confidence in the group's business recovery plan.
In contrast, Swiss building materials company Holcim bucked the trend with a gain of approximately 5%, mainly benefiting from the company's upward revision of its full-year earnings forecast.
Against the backdrop of broad pressure across European markets, companies with improving profit outlooks continued to attract investor favor.
Brent Crude Breaks Above $117, Middle East Supply Risks Intensify European Inflation Pressure
In addition to France's political and fiscal problems, the rapid rise in international oil prices was also a major factor weighing on European stocks this week.
Brent crude rose about 4% on Thursday and continued to climb on Friday, breaking above $117 per barrel during intraday trading to reach a five-month high.
This round of oil price gains was mainly driven by escalating conflict in the Middle East.
Yemen's Houthi rebels claimed to have intensified attacks on Saudi Arabia's energy and transportation infrastructure, with targets including Saudi Aramco facilities in Yanbu and Shaybah.
Saudi Aramco has asked employees at its Dhahran headquarters to evacuate.
At the same time, news that the United States has expanded the scope of evacuating diplomatic personnel from the Middle East, along with unconfirmed reports of an explosion near the Strait of Hormuz, further heightened market concerns about disruptions to regional energy supplies.
For European economies that are heavily dependent on energy imports, persistently rising oil prices could not only drive up corporate production and transportation costs but also increase the cost-of-living pressure on households, posing additional challenges to already weak economic growth.
The rebound in energy prices also complicates the monetary policy outlook for major central banks.
The market widely expects the Federal Reserve to keep interest rates unchanged at its October 28 meeting, but according to the CME FedWatch tool, traders see about an 80% probability of a Fed rate hike in December.
This week's decline in European stock markets reflects multiple risks accumulating simultaneously: France's fiscal and social turmoil is hitting the government bond market, AI infrastructure financing pressures are dragging down technology stocks, and the Middle East situation is pushing energy prices higher, further increasing inflation and growth pressures on the European economy.
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