Here’s why DAX, CAC 40, FTSE 100, and Stoxx 50 indices are crashing

European stock index futures are diving today, May 18, as geopolitical tensions and bond yields jump. The FTSE 100 Index futures dropped by 1.71%, while the DAX Index and CAC 40 retreated by over 1%. The broad Stoxx 50 Index futures fell by over 1.3%.

FTSE 100, DAX, CAC 40, and Stoxx drop amid rising geopolitical risks

European stock futures pulled back on Monday, continuing a trend that has been going on since last week. The Stoxx 50 Index futures retreated to €5,746, while the DAX fell by 1.15% to €23,670. Similarly, the CAC 40 futures fell by 1.17% to €7,860, while Italy’s FTSE MIB fell by 0.85% to €48,680.

European stock indices are falling | Source: TradingEconomics

European futures retreated as concerns about the global economy continued, with President Donald Trump warning that he may have to restart his war to push Iran to make a deal. Besides, the US has already gathered thousands of troops in the region, and analysts predict that the attack will be imminent now that his China trip has ended.

Renewed strikes between the US and China would have a major impact on the European economy. For one, it would push crude oil prices higher. Brent, the global benchmark, has jumped to $111, while the West Texas Intermediate rising to $109. 

A strike would lead to higher prices as Iran has warned that it would intensify its attacks against Middle East energy infrastructure, including the Saudi Arabian pipeline. It would also use its military might in the region to shut the Red Sea, where 12% of the world’s oil transit. 

Soaring inflation and bond yields

European stocks are also slipping as local bond yields jump amid fears that inflation will continue rising, pushing the ECB to hike interest rates. 

Data shows that the ten-year bond yields jumped to 3.17%, its highest level since May 2011. Similarly, in France, the ten-year rose to 3.99% from the pandemic low of minus 0.60%. In Italy, the yield has jumped to 3.95%, while in Spain, it jumped to 3.62%. 

Analysts predict that European inflation will continue soaring this year. The most recent data showed that the headline CPI rose from 2.6% in March to 3% in April. As a result, the European Central Bank hinted that it will hike rates in the April meeting.

UK political conditions are worsening

The FTSE 100 Index is the worst-performing European index because there are rising concerns that the UK is becoming ungovernable. Keir Starmer, who led the Labor Party to a big victory in 2024, is now on the verge of losing his seat. 

The main challenge is that the UK has now had four prime ministers in the last decade. This has made the premiership role less attractive as the next one too will likely not finish his term. 

Businesses prefer a situation where there is political stability, something that has become rare in the UK. This also explains why the GBP/USD pair has collapsed harder than other currencies this year.