European shares fell on Friday, tracking a loss in global markets on the back of a chip-stock selloff and an escalating Middle East conflict.
Investors rushed out from highly volatile tech stocks from Japan to Europe, taking cover in sectors that have lagged so far this year, as the uncertainty over AI investments played out.
Strong forecasts from AI industry leaders such as chip equipment maker ASML (ASML.AS) and Taiwan's TSMC (2330.TW) this week did little to stem the weakness. While Japan's Nikkei confirmed a correction on the day, Wall Street's Nasdaq futures slid over 1%.
The pan-European STOXX 600 index (.STOXX) was down 0.6% at 639.49 points by 0849 GMT and is on track to log a small weekly decline, taking its two-week loss to about 2%.
Europe's tech sector (.SX8P) shed 2.3% and led sectoral declines, with chipstocks Soitec (SOIT.PA), ASMI (ASMI.AS) and ASML (ASML.AS) dropping between 4% and 6%.
In contrast, utilities stocks (.SX6P) rose 1.3%, while luxury (.STXLUXP) is the best-performing sector this week.
Ipek Ozkardeskaya, senior analyst at Swissquote Bank, believes this run to cover is unlikely to last.
"The rotation trade is threatened today by rising yields, rising borrowing costs and geopolitical tensions, because both smaller companies and the non-technology pockets of the market remain more vulnerable than their big technology peers," said Ozkardeskaya.
That risk played out as Britain's Burberry slipped 4.5% after the luxury group said the Middle East conflict weighed on tourist spending in Europe.
Rising energy prices have also sharpened the focus on the European Central Bank, which is widely expected to keep interest rates unchanged on July 23. Investors still expect a second rate hike this year in September as higher oil prices risk reigniting inflation pressures.
Iran said it launched fresh attacks on U.S. facilities in the Gulf, lifting oil prices further to over a one-month high.
Saab (SAABb.ST) rose 5.5% after the Swedish defence and aerospace group reported a bigger-than-expected increase in second-quarter operating profit.
Among other top movers, Norwegian recycling technology company Tomra Systems (TOM.OL) jumped 14.7% after upbeat quarterly results, while Swedish tech company Lagercrantz (LAGRb.ST) slid 14.6% on downbeat quarterly core earnings.
Volvo Group (VOLVb.ST) rose 0.5% after the Swedish truckmaker reported a 35% jump in second-quarter profit.
Private equity firm EQT (EQTAB.ST) gained 11.3%. Australia's Perpetual rejected a sweetened A$2.5 billion ($1.75 billion) takeover proposal from the Swedish company.
