European equities advanced on Thursday as investors assessed the Federal Reserve’s latest interest-rate increase, developments surrounding the Middle East conflict and forthcoming monetary policy decisions.
The pan-European STOXX 600 index gained 0.4%, extending the previous session’s advance. Germany’s DAX, France’s CAC 40 and London’s FTSE 100 also recorded gains of approximately 0.4%.
The Federal Reserve’s first interest-rate increase since mid-2023 had been largely anticipated by financial markets, although investors remained focused on the central bank’s future policy direction.
Daniela Hathron, senior market analyst at Capital.com, said: “Markets absorbed the hike relatively calmly because it was almost fully priced, but the reaction turned more defensive. Investors were responding primarily to the future policy path rather than yesterday’s hike itself.”
Federal Reserve Chair Kevin Warsh’s decision to raise borrowing costs came amid concerns about inflationary pressures associated with higher energy prices.
Middle East Diplomatic Developments
Investors also monitored indications of potential diplomatic progress in the Middle East following seven months of conflict involving Iran.
US President Donald Trump expressed optimism that the conflict could be approaching an end and indicated that Tehran was interested in reaching a peace agreement.
Axios reported that Trump was expected to hold bilateral meetings with Gulf leaders on the sidelines of the forthcoming United Nations General Assembly.
The possibility of diplomatic progress remained a consideration for investors assessing geopolitical risks and their potential implications for energy markets.
Bank of England and Eurozone Inflation in Focus
Attention also turned to the Bank of England’s interest-rate announcement and the final reading of Eurozone consumer price inflation, both scheduled for later on Thursday.
The FTSE 100 was described as broadly unchanged in a subsequent market snapshot as investors awaited the Bank of England’s decision, following an earlier reported gain of approximately 0.4%.
UK consumer price inflation reached 3.1% in August, increasing attention on Governor Andrew Bailey’s assessment of price pressures and the possibility of further monetary tightening during the autumn.
Hathron added: “Bailey’s assessment of second-round energy effects may matter considerably more than today’s headline decision.”
Investors were also awaiting final Eurozone inflation figures for further information on the effects of natural gas and electricity prices on underlying inflation.
The European Central Bank raised interest rates to 2.5% the previous week, while the Bank of Japan was widely expected to increase its benchmark rate by 25 basis points to 1.25% on Friday.
The prospect of further monetary tightening across major economies remained an important consideration for equity markets, particularly as higher government bond yields affect borrowing costs and equity valuations.
European stocks nevertheless recorded modest gains during Thursday’s session as investors evaluated central bank policy and the potential for diplomatic developments in the Middle East.
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