European shares edged lower, influenced by a sell-off on Wall Street and concerns over slowing growth due to tariffs. Meanwhile, Turkish assets tumbled after authorities detained President Tayyip Erdoğan’s main political rival, Ekrem Imamoglu, sparking fears of political instability and economic reform setbacks, according to Reuters.
The pan-European STOXX 600 index fell 0.1%, ending a three-session winning streak. Germany’s DAX index dropped 0.3% after hitting a record high on Tuesday, as investors digested the country’s plans to overhaul its debt rules to increase spending on defence and infrastructure.
European markets took cues from Wall Street, where the S&P 500 fell 1.1% and the Nasdaq dropped 1.7% on Tuesday, driven by ongoing concerns about the economic impact of US tariffs. Futures pointed to a muted opening on Wall Street on Wednesday, with S&P contracts ticking up 0.1%.
US stocks have faced significant pressure this year due to President Donald Trump’s unpredictable tariff policies, which have created uncertainty for businesses, households, and investors. In contrast, European markets have been buoyed by plans to increase defence spending, Germany’s fiscal reforms, and hopes for a resolution to the war in Ukraine.
Asian markets
Asian stocks struggled for direction, with Japan’s Nikkei 225 index down 0.25%, while China’s CSI 300 inched slightly higher. Analysts noted that concerns about a US growth slowdown relative to expectations continue to weigh on global markets.
The dollar index rose 0.25% to 103.57, recovering from a five-month low of 103.19 reached on Tuesday. The euro had rallied following the approval of Germany’s spending bill by parliament’s lower house. The dollar also gained slightly against the yen, rising 0.2% to 149.60 after the Bank of Japan held interest rates steady.
Investors are now turning their attention to the Federal Reserve’s rate decision later in the day. Traders expect the Fed to maintain rates in the 4.25%-4.50% range but will closely watch new economic projections amid tumbling stock markets and signs of tightening credit. Markets are pricing in around 60 basis points of rate cuts this year, with the first cut fully priced in for July.
Turkish market turmoil
Turkish assets faced a sharp sell-off after authorities detained Istanbul Mayor Ekrem Imamoglu on charges of corruption and aiding a terrorist group. The lira fell around 5% to 39 per dollar, marking its biggest daily drop since June 2023. Turkey’s main stock index dropped approximately 6%, and government bond prices declined as investors reassessed political risks.
Analysts warned that the arrest raises concerns about the future of economic reforms in Turkey. Nick Rees, head of macro research at Monex Europe, noted that traders had become complacent, and the arrest has triggered a repricing of Turkey’s political risk premium, leading to the lira’s sharp decline.
The sell-off in Turkish assets is also contributing to the dollar’s strength, as investors seek safer havens amid global market uncertainty.
