European equities held their ground Wednesday as robust earnings from tech and luxury giants countered deepening unease over Middle East tensions, leaving the STOXX 600 virtually unchanged at 641.83 points by mid-morning. Main Developments Technology stocks climbed 1%, powered by ASML's 3.8% surge after the chip equipment maker raised its 2026 financial forecasts, reinforcing confidence in AI-driven demand. Rivals ASM and Soitec each gained more than 1%. Luxury stocks, the worst-performing sector this year, rebounded 2.9% as Richemont jumped 6.1% on better-than-expected first-quarter results, lifted by jewelry sales in Asia and the Americas. Read also: Why Gold Prices in Pakistan Jumped Rs900 Per Tola Today Germany's benchmark lagged, down nearly 0.7%, dragged by software company SAP's 1.2% slide. Other software firms Dassault Systemes and Sage each lost about 1%, reflecting investor rotation away from sectors seen as potential AI losers. Deutsche Bank slipped 0.6% after Frankfurt prosecutors executed a search warrant at one of its branches. Software developer Nagarro fell 2.7% after Germany's financial watchdog BaFin launched an enforcement review of its 2022 financial statements. Swedish grocer Axfood tumbled 11.2% on quarterly results that missed estimates. Background The STOXX 600 entered Wednesday flat after a strong second-quarter rally fueled by AI optimism, which recently sparked jitters about whether lofty expectations could be sustained. Oil prices have climbed to $85 a barrel as Iran-US tensions intensified, with Tehran closing the crucial Strait of Hormuz. Investors have been reducing exposure to software companies, considered potential losers from the AI boom, while rotating into chip and luxury stocks that are directly benefiting from the trend. The luxury sector had been the worst performer this year before Wednesday's rebound. Why It Matters The Middle East conflict injects fresh uncertainty into the European Central Bank's monetary policy trajectory. Although policymaker Martin Kocher said he sees no second-round inflation effects yet, traders still price in at least a 25-basis-point rate hike by September, according to LSEG-compiled data. State Street's head of macro strategy Michael Metcalfe noted that while some earnings are positive, the broader picture leans defensive because of geopolitical risk. This tension between strong corporate results and external threats defines the current market landscape. What's Next Investors will continue parsing quarterly results and forward guidance for clues on whether AI-driven demand can sustain the recent rally. The ECB's September meeting looms large, with rate expectations hinging on how the Middle East situation evolves and whether oil prices push higher.