European equities traded near two-month lows on Friday and were heading for their largest weekly decline since April as investors assessed higher interest rates and rising energy prices.
The Stoxx Europe 600 gained 0.3% but remained around its lowest level in eight weeks. The index was on course to decline more than 2% for the week, which would represent its weakest weekly performance in five months.
Germany’s DAX rose 0.3%, France’s CAC 40 gained 0.5% and the UK’s FTSE 100 was 0.1% higher.
Brent crude reached a four-month high of $109.97 per barrel and was on track for a weekly gain of almost 13%. Oil markets remained affected by restrictions on tanker traffic through the Persian Gulf following military exchanges between US forces and Iranian naval assets.
Iran-aligned Houthi forces also seized the Yemeni port of Mocha overnight, adding to concerns over shipping routes in the Red Sea and Saudi Arabian oil exports.
ECB Raises Deposit Rate to 2.50%
European markets continued to assess Thursday’s European Central Bank decision to increase its deposit facility rate by 25 basis points to 2.50%, its highest level since April 2025.
Eurozone headline inflation increased to 3.3% in August, with the energy component rising 14.3%.
Money markets were pricing in a probability of more than 90% that the ECB would raise rates again before the end of the year. This represents market expectations rather than a confirmed policy decision.
Higher government bond yields and increased input costs coincided with declines during the week in rate-sensitive growth stocks, industrial companies and consumer discretionary shares.
US Inflation Data in Focus
Investors were also awaiting Friday’s US Consumer Price Index report for further indications about the Federal Reserve’s next policy decision.
The inflation report follows US nonfarm payroll data showing an increase of 162,000 jobs.
A higher-than-expected inflation reading could increase market expectations for a Federal Reserve rate rise at its September 15-16 meeting. The outcome of that meeting remains dependent on the Fed’s assessment of economic conditions.
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