European equity markets moved lower on Friday as renewed military escalation in the Middle East lifted oil prices and revived inflation concerns. Even so, a solid start to the second-quarter earnings season helped limit losses, leaving major indexes on course to finish the week in positive territory.
The pan-European STOXX 600 slipped 0.6% during early trading but was still on track for a weekly advance of around 0.4%. Strong corporate results, particularly from leading banking groups, have supported investor sentiment throughout the week and helped cushion the broader market.
Investor confidence was challenged after the United States and Iran exchanged military strikes for a sixth consecutive day. The latest escalation pushed crude oil prices sharply higher, fuelling concerns that sustained energy inflation could slow the global disinflation process and complicate future monetary policy decisions by major central banks.
Despite the geopolitical backdrop, European markets proved more resilient than their Asian counterparts, where technology stocks led a much steeper sell-off overnight. Europe’s comparatively smaller exposure to mega-cap technology companies helped limit the downside.
Within the semiconductor sector, STMicroelectronics (BIT:STMMI) declined 5%, while ASML (EU:ASML) fell 3.5%.
Investors continued to focus on encouraging corporate earnings and signs of easing inflation in the United States earlier this week, both of which helped reduce immediate concerns over higher global interest rates despite the worsening geopolitical environment.
Attention is now turning to next week’s European Central Bank policy meeting.
Most economists expect the ECB to leave its benchmark deposit rate unchanged. However, the recent jump in oil prices has led money markets to increase expectations that interest rates could move higher later if inflationary pressures persist.
The central bank is expected to balance weakening economic growth across the eurozone against the risk that higher energy costs could generate fresh inflationary pressures.
Across Europe’s major markets, London’s FTSE 100 fell 0.3% but remained on course for a weekly gain, supported by banking shares. France’s CAC 40 declined 0.6%, Germany’s DAX eased 0.5%, while Italy’s FTSE MIB lost 1% and Spain’s IBEX 35 slipped 0.3% as investors reduced exposure to risk assets.
Among individual companies, Danske Bank (TG:DSN) declined 2.5% following the release of its latest quarterly results.
Leave a Reply