European stocks fall sharply on Middle Est tensions; Fed starts meeting

Investing.com - European stocks fell sharply Tuesday on fears of an escalation of the conflict between Israel and Iran, ahead of the start of the two-day meeting by the Federal Reserve.

At 03:05 ET (07:05 GMT), the DAX index in Germany dropped 1%, the CAC 40 in France slipped 0.8% and the FTSE 100 in the U.K. fell 0.5%. 

Israel-Iran conflict hits sentiment

Global sentiment has taken a turn for the worse Tuesday as Israel and Iran have continued to launch attacks against each other, with the conflict entering a fifth day.

U.S. President Donald Trump urged Iranians to evacuate the capital Tehran after  cutting short his visit to the Group of Seven summit, ramping up concerns over U.S. involvement in the conflict. 

White House officials clarified that the U.S. was not planning to directly involve itself in the conflict. 

Defense Secretary Pete Hegseth told Fox News that Trump was aiming for a deal with Iran on the latter’s nuclear-related activity, but added that the U.S. would defend its assets in the region.

G7 expresses support for Israel

The Group of Seven nations expressed support for Israel in a statement issued late on Monday and labeled its rival Iran as a source of instability in the Middle East.

The gathering of leaders of the major industrialized nations in the world had already seen Trump and British Prime Minister Keir Starmer announce they had finalized a trade deal reached between the two countries last month.

Starmer said the proclamation would implement agreements reached on auto tariffs and aerospace, without providing any details.

Federal Reserve starts two-day meeting

The Federal Reserve starts its latest two-day policy meeting later in the session, with the U.S. central bank widely expected to maintain the fed funds rate at 4.25%-4.50% when it announces its decision on Wednesday.

Investors will be looking for any hints about whether the Fed might be poised to lower rates in the coming months, or whether the Trump administration’s chaotic trade policies will prolong the current ‘on-hold’ stance.

The Bank of Japan kept interest rates unchanged, as widely expected, earlier Tuesday, and stated it will continue to buy government bonds over the next two years but will slow the pace at which it is cutting its bond purchases from 2026.

The Bank of England, the Norges Bank, the Riksbank and the Swiss National Bank all have meetings in Europe this week.

Renault search for new CEO

In the corporate sector,  there are no major quarterly earnings scheduled this Tuesday, but Renault (EPA:RENA) will be in the spotlight following the abrupt departure of Luca de Meo as CEO of the troubled automaker.

Renault shares fell as much as 8% on Monday, their biggest one-day percentage drop since February 2022, following the news. 

Analysts have mentioned longtime insider Denis Le Vot and Maxime Picat of rival Stellantis (NYSE:STLA) as suitable fits as his successor.

Crude hands back earlier gains

Oil prices stabilized Tuesday after earlier gains as traders continued to assess the conflict in the Middle East and the potential to disrupt crude supplies from the oil-rich region.

At 03:05 ET, Brent futures gained 0.1% to $73.27 a barrel and U.S. West Texas Intermediate crude futures rose 0.1% to $70.30 a barrel.

Oil prices settled more than 1% lower on Monday on hopes that the conflict would ease after media reports Iran was seeking an end to hostilities.

However, prices have been volatile Tuesday after Trump in a social media post urged "everyone" to evacuate Tehran.