European stocks have just endured two sessions of heavy losses, causing most of the major indices on the Continent—such as the CAC, the DAX, and the Euro STOXX 50—to erase all the gains they had posted since the beginning of the year amid hopes of a growth recovery.

"Everyone is worried about a conflict that could drag on or escalate and trigger a shockwave combining a surge in inflation and the risk of recession, which would threaten our base scenarios," explains Michael Brown, strategist at Pepperstone.

Market sentiment remains primarily influenced by the impact of tensions on the energy market, which are fueling inflation while slowing economic activity, as was demonstrated yesterday by the new surge in European gas prices—a painful reminder of the Ukraine-related episode in 2022.

With markets entirely focused on geopolitical turmoil, volatility is expected to persist in the short term, or even the medium term, and continue to weigh on investor morale.

Between the new wave of strikes carried out by Israel against Iran and Tehran's announcement of attacks on Israeli and American targets, the latest news from the Middle East offers little cause for optimism.

However, an announcement by Donald Trump helped ease tensions related to the closure of the Strait of Hormuz—a scenario that would mean a potential shortage of oil and liquefied gas—as the American president stated he would not hesitate to order the Navy to step in to escort and protect merchant ships.

Nevertheless, the turmoil shaking the Middle East caused the Dow Jones to fall by 0.8%, the S&P 500 by 0.9%, and the Nasdaq Composite by more than 1%.

Following this decline, futures are again pointing lower on Wall Street on Wednesday.

On the Tokyo Stock Exchange, the Nikkei index was down nearly 3.8%, its sharpest one-day correction since the announcement of the "Liberation Day" tariffs last April.

The trend is even more negative in South Korea, where the Kospi composite index is set to suffer a drop of more than 11%, its largest daily decline since September 11, 2001.

This marked resurgence in risk aversion is accompanied by sell-offs by investors across the main asset classes, even the most defensive ones.

On the bond market, the yield on 10-year US Treasuries has risen above 4.05%, as fears of renewed inflationary pressures reduce the likelihood of an imminent Fed rate cut.

Another safe haven, gold, is also losing momentum, the victim of profit-taking after its sharp rise in recent days and the strengthening of the US dollar, with geopolitical risks already largely priced in.

On the oil front, Brent is up more than 3% at $83.9, and West Texas Intermediate is gaining 2.8% at $76.7.

Today's session will be marked by the release, during the morning, of the final versions of the PMI activity indices for the European services sector, followed this afternoon by the publication of the ISM services index in the United States.