European equity markets opened in negative territory on Thursday as investors remained cautious ahead of several major central bank interest rate announcements while closely following geopolitical developments in the Middle East.
At 08:17 GMT, the pan-European Stoxx 600 index was down 1.2%. Germany’s DAX declined 1.6%, France’s CAC 40 fell 1.1%, and the UK’s FTSE 100 slipped 1.2%.
Market attention is focused on policy decisions expected later in the day from the European Central Bank and the Bank of England. Investors are looking for clues from policymakers on how the ongoing conflict involving Iran could affect economic conditions across Europe.
Both the ECB and the BoE are widely expected to keep interest rates unchanged, following a similar stance taken by several other major central banks on Wednesday. The Federal Reserve, the Bank of Japan and the Bank of Canada all opted to hold rates steady, although they warned that inflationary pressures could increase if the joint U.S.–Israeli military action against Iran evolves into a prolonged conflict.
Central banks now face the delicate challenge of managing inflation risks without undermining economic growth — a situation reminiscent of the energy shock triggered by Russia’s full-scale invasion of Ukraine in 2022.
As a result, concerns about stagflation, characterized by weak economic activity combined with elevated inflation, have intensified. Investors have responded by adopting a more defensive stance, scaling back expectations for near-term interest rate cuts, reducing exposure to equities and increasing allocations to the U.S. dollar.
Oil climbs above $110 per barrel
Oil markets also extended their rally, with Brent crude, the global benchmark, rising above $110 per barrel.
The latest jump followed Iranian attacks on energy infrastructure in the Middle East, including facilities linked to the strategically important South Pars gas field.
“Supply risks continue to grow in energy markets amid an escalation in attacks on Persian Gulf energy infrastructure,” analysts at ING said in a note.
By 06:59 GMT, Brent crude futures had surged 6.0% to $113.74 per barrel, while U.S. West Texas Intermediate crude was up 1.0% at $96.26 per barrel. WTI has recently traded at its widest discount to Brent in more than ten years, partly due to releases from the U.S. strategic petroleum reserve.
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