A look at the day ahead in European and global markets from Ankur Banerjee

Blockbuster earnings from chipmaker SK Hynix ( SKHY ) did little to quell investor fear about AI risk as a rout in chip stocks deepened, setting the stage for results from Big Tech firms this week.

SK Hynix's ( SKHY ) April-June operating profit soared more than sixfold (that's 557% if you prefer percentages) yet still managed to miss analysts' lofty estimates - a miss that coincided with investors fretting about the sustainability of AI spending and long-term returns from booming in chip demand.

Earnings from the "Magnificent Seven" members Microsoft and Meta later in the day will be a key test of the AI trade that has shaped the global markets.

Alphabet and Tesla spooked investors last week with negative cash flow reports, highlighting the tug of war between the need to spend a lot to build AI infrastructure and the need for steady cash flow and profitability.

South Korea's KOSPI dropped 12%, triggering an increasingly common 20-minute trading halt, and carrying on from a 10% slump in the previous trading session.

The index, which rocketed in the first half of the year due to AI frenzy, is still the world's best performer this year but is staring at a 35% decline in July, its worst monthly performance.

Elsewhere, oil prices jumped after U.S. Central Command reported the interception of Iranian ballistic missiles, shattering the sense of calm in markets that had lasted the past few days.

Concern about declining oil supply as well as inflationary pressure weighed on sentiment ahead of a U.S. Federal Reserve policy decision. Traders are pricing in a one-out-of-three chance of an interest rate hike, with policymakers increasingly vocal about their worries over inflation.

Still, market participants broadly expect the central bank to stand pat so all eyes will be on Fed Chair Kevin Warsh and his comments for hints on the rates outlook.

In Europe, a slate of earnings will provide clarity on the state of corporate health while war in the Middle East shows no signs of stopping soon.

Key developments that could influence markets on Wednesday:

-- Earnings from Danone, Hermes, L'Oreal, UBS, Airbus, Meta, Microsoft and Qualcomm

-- Fed policy decision