Global markets showed notable divergence during Wednesday's sessions, as falling oil prices and shifting expectations for US monetary policy continued to influence equity performance. The aviation sector benefited from lower fuel costs, while technology and chip stocks faced selling pressure. Overall, current global market movements reflect a phase of "rebalancing", driven by three main forces: results from technology and semiconductor companies, the trajectory of monetary policy in major economies, and geopolitical developments linked to energy. Against this backdrop, the general market direction remains contingent on how clearly the outlook for global economic growth in the second half of the year takes shape.

US stocks

US airline stocks surged between 3% and 7% on Wednesday, driven by crude oil prices falling to their lowest levels since before the Iran war — welcome news for a sector long burdened by high fuel cost pressures.

The S&P 500 Airlines Index hit a new record high, rising 5%, lifting its gains to approximately 13% since its close on 12 June, the date the US-Iran peace agreement was announced, while the broader S&P 500 index fell 0.5% over the same period.

Brent crude futures fell below $74 per barrel amid signs of increased tanker traffic through the Strait of Hormuz. Jet fuel had peaked above $170 per barrel during the war before retreating to an average of $119 in the week ending 19 June, compared with approximately $85 to $90 before the conflict began.

UBS forecast that airline earnings per share in the third quarter could beat Wall Street expectations if fuel prices remain low, noting that carriers with smaller fleets and profit margins more sensitive to fuel fluctuations would benefit the most.

On individual stocks, American Airlines jumped 7%, Alaska Air and United each rose approximately 6%, JetBlue gained 4.5%, Delta climbed 3.7%, while Frontier and Southwest each added 3%. Analysts cautioned, however, that the prospect of this drop translating into lower passenger ticket prices remains unlikely in the near term given limited capacity.

European stocks

European equities were broadly flat on Wednesday as investors assessed developments in US-Iran negotiations, while shares in defence group Rheinmetall fell sharply after Germany cancelled a frigate manufacturing programme.

The pan-European STOXX 600 index closed up 0.1%, while Germany's DAX ended trading down 0.6%.

Rheinmetall plunged 18.7%, marking its largest single-day decline on record, after Germany cancelled plans to build six F126-class frigates due to delays and cost overruns — a contract the defence group had been expected to win.

Berlin will instead procure smaller MEKO A-200-class frigates from Thyssenkrupp's naval unit, sending that company's shares up 16%.

The aerospace and defence sub-index fell 0.8%, and the industrials sub-index also declined 0.2%.

Michael Field, equity market strategist at Morningstar, said: "There is a very unstable environment and ongoing wars. That should lead to a positive sentiment towards the defence sector, but that is not happening."

Commodity-linked sectors recorded the largest declines on the STOXX 600, with mining and energy stocks falling 2.5% and 2.3% respectively, tracking the drop in metals and oil prices.

The real estate sector rose 3%, with Segro shares jumping 17.4%.

The technology sector gave up its gains and closed down 0.3%, having posted its largest single-day decline in nearly five months in the previous session. Infineon shares fell 1.2%, while BE Semiconductor and ASML declined 1.3% and 0.5% respectively.

Japanese stocks

Japan's Nikkei index fell for a second consecutive day on Wednesday, as concerns over the possibility of the US Federal Reserve raising interest rates and valuations in the artificial intelligence sector weighed on investor sentiment.

The Nikkei fell 0.88% to close at 69,174.97 points, retreating from the record high it reached on Monday. The broader TOPIX index dropped 0.67% to 3,963.76 points.

The decline followed overnight losses on US stocks, with the Philadelphia Semiconductor Index falling 7.9%, amid concerns over debt-funded spending on artificial intelligence and tightening financial conditions.

Analysts at Sony Financial Group said in a note: "Speculation that the Federal Reserve is heading towards raising interest rates has heightened concerns about rising capital expenditure financing costs in the AI sector, which appears to have accelerated the pace of decline in semiconductor stocks."

91 stocks on the Nikkei advanced, 131 declined, and 3 were unchanged.

Chip-related stocks were among the fallers, with Tokyo Electron dropping 4.19% and Disco falling 3.78%.

Insurance stocks also declined sharply, led by T&D Holdings, which fell 5.74%.

Retail sector stocks broadly rose, however, with J. Front Retailing advancing 3.99%.