European equity markets showed little momentum on Thursday as investors remained on the sidelines ahead of a widely expected interest-rate decision from the European Central Bank, while escalating tensions between the United States and Iran continued to weigh on sentiment.
The pan-European STOXX 600 was broadly unchanged at the open after falling to its lowest level in more than three weeks during the previous session. London’s FTSE 100 gained 0.2% after touching its weakest level since late March on Wednesday. Germany’s DAX slipped 0.1%, remaining near three-week lows, while Italy’s FTSE MIB advanced 0.4%.
Markets Prepare for ECB Tightening
The ECB is expected to increase its benchmark deposit rate by 25 basis points to 2.25% when it announces its policy decision at 1215 GMT. If implemented, the move would represent the central bank’s first interest-rate hike since 2023 and signal a continued commitment to controlling inflation despite softer economic growth across the region.
Investors face a challenging backdrop as tighter monetary policy coincides with elevated energy prices. Higher borrowing costs could reduce corporate investment and consumer spending, while rising fuel and utility costs threaten profitability across a range of industries, particularly energy-intensive sectors.
Expectations of a rate increase have also led markets to reduce forecasts for ECB rate cuts later this year, removing a key source of support that had helped European equities in recent months.
Government bond yields across the eurozone remained elevated ahead of the announcement, further limiting appetite for risk assets.
“How far ECB President Christine Lagarde goes during the press conference towards underpinning existing expectations for a fully priced follow-up move in September is the key issue,” Sam Hill, head of market insights at Lloyds Bank said.
“She won’t want to fully commit to it so far in advance, but equally don’t look for her to try too hard to try and dissuade markets from where they are already at.”
Geopolitical Tensions Continue to Influence Markets
Concerns surrounding the Middle East remained a major focus after a second consecutive day of military exchanges between the United States and Iran. President Donald Trump warned that additional military action could be taken if Tehran failed to agree to an immediate peace arrangement.
The renewed conflict has weakened hopes for a diplomatic resolution and reversed some of the optimism that had recently supported global markets. Investors remain concerned that a prolonged confrontation could disrupt energy supplies from the region and reignite inflationary pressures at a time when central banks are still attempting to bring price growth under control.
Corporate Movers
Among individual stocks, Hugo Boss AG NA O.N. (TG:BOSS) surged around 8% after Frasers Group PLC (LSE:FRAS) launched a €2 billion takeover proposal for the German fashion company.
Wizz Air Holdings PLC (LSE:WIZZ) gained approximately 3% after reporting annual profit that exceeded analyst expectations.
Meanwhile, software giant SAP SE (TG:SAP) declined nearly 3%, making it one of the weaker performers in the European market.
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