European stocks flat near two-week lows as bond yields hit multiyear highs

European equities traded sideways on Wednesday, struggling to recover after their steepest single-day decline in nearly a month as surging bond yields and escalating Middle East tensions kept investors on the defensive ahead of the release of minutes from the U.S. Federal Reserve's July meeting.

The pan-European STOXX 600 was flat at 652.07 as of 0715 GMT, hovering near two-week lows, according to Reuters. Germany's DAX slipped around 0.2%, while France's CAC 40 edged 0.2% higher. London's FTSE 100 and Spain's IBEX 35 were also largely unchanged.wsau+1

Bond Yields and Sector Rotation

The German 10-year Bund yield climbed to 3.22%, its highest level since May 2011, while the U.S. 30-year Treasury yield surged past 5.30%, tightening the discount rate applied to equities and making government debt increasingly competitive with stocks.investing+1

Technology shares were the weakest major sector, falling 0.4% as higher yields compressed valuations on growth-oriented companies. Semiconductor stocks came under additional pressure after reports that Anthropic's annual revenue run-rate reached $65 billion at the end of July failed to meet elevated investor expectations. Soitec led losses with a 4.4% decline, while Nordic Semiconductor ↗ 1.06% and Scout24 fell between 2.1% and 2.3%.economictimes.indiatimes+1

Basic resources stocks bucked the trend, rising 0.6% on the back of higher gold prices as investors sought safe-haven assets.wsau+1

Mideast Tensions and Inflation Pressures

Geopolitical uncertainty weighed on sentiment after President Donald Trump said on Tuesday that no talks were taking place with Iran and insisted the Strait of Hormuz remained open, contradicting Iran's assertion that the critical waterway was closed to shipping. Brent crude futures hovered near three-week highs around $91.50 a barrel as disruptions to shipping through the strait supported the energy risk premium.wsau+1

The combination of elevated oil prices and sticky inflation complicated the outlook for central banks. European Central Bank Chief Economist Philip Lane warned on Tuesday that Eurozone inflation at around 3% remains "well above" the 2% target. Money markets shifted to nearly fully pricing in a 25-basis-point ECB rate hike at the September meeting. In Britain, annual consumer price inflation accelerated to 2.9% in July from 2.6% in June.investing+2

Fed Minutes in Focus

Investors awaited the release of the Fed's July meeting minutes later Wednesday for clues on policymakers' views on inflation, economic growth, and the timing of potential rate adjustments. Comments from ECB President Christine Lagarde were also expected to be closely scrutinized for signals on whether the central bank is preparing markets for another rate increase despite weakening economic momentum.xtb+1