European equity markets dropped sharply Tuesday, rattled by escalating violence between Israel and Iran just as the Federal Reserve commenced its two-day policy meeting.
By 03:05 ET, Germany’s DAX had fallen 1%, France’s CAC 40 slipped 0.8%, and the UK’s FTSE 100 was down 0.5%, reflecting growing investor anxiety over the conflict’s potential to destabilize global markets.
Israel-Iran Conflict Deepens Investor Caution
The ongoing hostilities between Israel and Iran, now entering their fifth day, have cast a shadow over market sentiment. U.S. President Donald Trump intensified concerns by urging Iranian civilians to evacuate Tehran and abruptly ending his attendance at the Group of Seven summit. However, White House officials quickly reassured that the U.S. does not intend to directly engage in the conflict.
Meanwhile, Defense Secretary Pete Hegseth told Fox News that while Trump seeks a diplomatic deal with Iran over its nuclear program, the U.S. remains committed to protecting its regional assets.
G7 Nations Stand Behind Israel
The G7 group, comprising leading industrial nations, issued a statement supporting Israel and identifying Iran as a destabilizing force in the Middle East. Amid these tensions, Trump and UK Prime Minister Keir Starmer announced the finalization of a trade deal between the U.S. and the UK, covering sectors such as automotive tariffs and aerospace, though detailed terms were not disclosed.
Federal Reserve Meeting in Focus
Investors are keenly watching the Federal Reserve’s policy meeting, where rates are widely expected to remain steady at 4.25%–4.50%. Market participants hope for guidance on whether rate cuts could be forthcoming or if ongoing trade uncertainties under the Trump administration will keep policy on hold.
Earlier Tuesday, the Bank of Japan maintained interest rates and pledged to continue government bond purchases over the next two years, albeit at a slower tapering pace starting in 2026. Other central banks, including the Bank of England, Norges Bank, Riksbank, and Swiss National Bank, also have policy decisions slated this week.
Renault Faces Leadership Shake-Up
Corporate news highlights include Renault’s search for a new CEO following Luca de Meo’s unexpected resignation. Renault shares plunged as much as 8% on Monday—their steepest one-day fall since February 2022. Industry insiders speculate that Denis Le Vot, a veteran Renault executive, or Maxime Picat of Stellantis could be frontrunners for the role.
Oil Prices Stabilize Amid Conflict
Oil markets steadied Tuesday after earlier volatility triggered by concerns about Middle East supply disruptions. At 03:05 ET, Brent crude futures rose slightly by 0.1% to $73.27 per barrel, while U.S. West Texas Intermediate futures also gained 0.1% to $70.30 per barrel. Prices had dropped over 1% Monday on hopes for de-escalation, but surged again after Trump’s call for Tehran’s evacuation.
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