European equities opened cautiously on Thursday as investors weighed the impact of the Federal Reserve’s latest policy signals against easing geopolitical tensions following the recent U.S.-Iran agreement.
The pan-European STOXX 600 slipped 0.2% in early trading. France’s CAC 40, Italy’s FTSE MIB and Spain’s IBEX 35 traded little changed, while Germany’s DAX outperformed with a gain of 0.3%.
Fed Message Overshadows Geopolitical Relief
Markets had initially been positioned for a broader relief rally after the United States and Iran reached a landmark agreement that helped ease concerns over global energy supplies and trade routes.
The prospect of improved stability in the Middle East pushed oil prices lower and initially supported investor sentiment.
However, enthusiasm faded after the Federal Reserve delivered a firmer-than-expected policy message despite leaving interest rates unchanged.
Investors interpreted the central bank’s comments as a signal that monetary policy could remain restrictive for longer than previously anticipated.
Rate Expectations Shift Higher
Financial markets moved quickly to adjust expectations following the Fed’s latest guidance.
According to CME’s FedWatch tool, the probability of an interest rate increase by December rose sharply to 85%, compared with roughly 42% before the central bank’s meeting.
The reassessment of future U.S. monetary policy helped dampen risk appetite globally and contributed to a more cautious tone across European equity markets.
Energy Stocks Weigh on Major Indexes
The decline in oil prices added further pressure to European markets, particularly within the energy sector.
Shares of BP Plc (LSE:BP.) and TotalEnergies SE (EU:TTE) came under pressure as Brent crude retreated toward key technical support levels.
The weakness in large energy companies weighed on both the FTSE 100 and CAC 40, limiting broader market performance despite strength in other sectors.
Focus Turns to Central Banks
In the UK, the FTSE 100 fell 0.5% as investors awaited the Bank of England’s latest monetary policy decision.
While policymakers are widely expected to leave interest rates unchanged, market participants are expected to focus closely on comments from Governor Andrew Bailey for indications on the future direction of UK monetary policy.
Attention will also remain on the European Central Bank later in the day, with several policymakers, including Chief Economist Philip Lane, scheduled to speak.
Investors will be watching for any clues regarding the future path of interest rates across the eurozone.
Mixed Performance Among Individual Stocks
Among notable movers, Tesco (LSE:TSCO) declined 2.5% after the retailer reported slower sales growth in its latest trading update.
In contrast, Informa (LSE:INF) gained 2% after reaffirming its outlook and signalling stronger growth prospects for the coming years.
The mixed corporate performances reflected a market that remains highly sensitive to both macroeconomic developments and company-specific news.
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