European stocks closed slightly lower on Tuesday, following a brief surge that saw the regional benchmark reach its highest level in almost two years. The Stoxx 600 index ended the day down 0.2%, erasing earlier gains of almost 0.7%. Oil and gas stocks bucked the trend, closing up 0.6% as investors kept a close eye on tensions in the Red Sea and their potential impact on oil prices. However, the technology sector experienced a notable decline of 1.8%.

The latest euro zone purchasing managers' index (PMI) released by S&P Global indicates that the bloc entered a recession in the third quarter of last year. The PMI data showed a "relentless slump" in manufacturing, which resulted in a continued decline in output throughout December, according to Cyrus de la Rubia, chief economist at Hamburg Commercial Bank.

In Asia-Pacific markets, there was a mixed performance on Tuesday. Chinese stocks dipped while Australian markets approached an all-time high. Official data revealed that China's manufacturing PMI contracted further in December 2023, signaling the potential need for additional policy support to revive the economy.

US stocks also experienced a dip on the first trading day of the year, following a strong performance in 2023 that saw the S&P 500 rally by 24%.

Danish shipping giant Maersk announced on Tuesday that it would halt all shipping transit through the Red Sea and Gulf of Aden until further notice. This decision comes after one of its vessels came under attack from militants. Maersk had already implemented a 48-hour pause immediately following the attack on Sunday. In response to the news, shares of Maersk rose 6.4% during Tuesday afternoon trading.

Airbus, the European planemaker, revealed that it is dispatching a team of specialists to provide technical assistance to French and Japanese authorities investigating a collision involving one of its A350 planes at Tokyo's Haneda airport. The aircraft involved in the collision was delivered to Japan Airlines in November 2021 and was equipped with Rolls-Royce Trent XWB engines. Airbus expressed its condolences to those affected by the accident. Shares of Airbus rose 0.8% during afternoon deals.

Meanwhile, the euro experienced a decline against the US dollar, trading 0.69% lower at $1.096 at 11:55 a.m. London time. Additionally, the euro was down 0.15% against the British pound at 0.866. Investors were digesting gloomy manufacturing data from the euro zone and looking ahead to upcoming inflation data from France, Spain, Italy, and Germany, as well as US job openings and nonfarm payrolls.

Bitcoin, the digital currency, started the year strongly by trading above $45,000 for the first time since April 2022. This marks a continuation of the significant gains Bitcoin has experienced over the past 12 months, rising by over 170%.

The euro zone saw a continued downturn in factory activity in December, as indicated by the latest PMI figures from S&P Global and Hamburg Commercial Bank. Although the PMI reading for the bloc showed slight improvement at 44.4, it remained well below the 50 mark that separates expansion from contraction. Despite some signs of improvement in areas such as new orders, purchasing activity, and business confidence, output and job losses remained concerning. Hamburg Commercial Bank's chief economist, Cyrus de la Rubia, highlighted the sustained decline in activity and demand for manufactured goods. He also suggested that if the trend continues, it would imply a contraction in GDP for the fourth quarter and indicate that the euro zone entered a recession in the third quarter.

When European markets opened on Tuesday, the Stoxx 600 index showed an upward trajectory of 0.43%. Most sectors experienced gains, with oil and gas leading the way at 1.3%, while technology stocks slipped by 0.2%. Germany's DAX and France's CAC 40 also saw promising gains of around 0.5%, and the UK's FTSE 100 rose by 0.25%.

In the UK, inflation in food prices eased to 6.7% in December from 7.7% the previous month, according to data compiled by the British Retail Consortium. This marks the lowest level of price rises since June 2022. Overall shop price inflation held steady at 4.3%. However, challenges lie ahead for retailers, including new border checks for EU imports and increased business rates bills starting in April.

Two conflicting surveys on China's manufacturing activity were released in December. While a private survey conducted by Caixin reported expansion with a PMI reading of 50.8, China's National Bureau of Statistics released an official PMI figure of 49.0, indicating a contraction. A reading above 50 signifies expansion, while a reading below indicates contraction.

Looking ahead, Goldman Sachs anticipates a promising year for European Big Oil, despite the challenges faced by the energy sector. The investment bank identified integrated oil stocks as potential winners in closing the valuation gap against US Big Oils, as they started to outperform their American counterparts. Enhanced buyback programs and double-digit cash returns to shareholders were noted as factors contributing to the attractiveness of European Big Oils.

As European markets kick off the new year, they are expected to open higher. The FTSE 100 is projected to open 20 points higher at 7,742, Germany's DAX is expected to rise by 48 points to 16,799, and France's CAC is set to increase by 27 points to 7,570. No major data releases are scheduled for Tuesday.

Overall, European stocks closed marginally lower following their recent surge, while concerns persist over the continued manufacturing slump in the euro zone. Danish shipping giant Maersk's decision to suspend shipping in the Red Sea further highlights the geopolitical risks in the region. Inflation and manufacturing data, as well as movements in the digital currency market, continue to shape investor sentiment as the new year begins.