European equities were little changed on Friday and remained on track for a modest weekly decline as investors balanced a strong corporate earnings season against rising oil prices and continued uncertainty surrounding the U.S.-Iran conflict.
The STOXX 600 edged 0.05% higher to 659.65 by 0710 GMT, keeping the index close to record levels despite losses earlier in the week.
Corporate earnings have provided underlying support, with second-quarter profit forecasts for Europe’s blue-chip companies rising for an eighth consecutive week. Aggregate earnings across the STOXX 600 are now expected to increase 23.4%, driven particularly by strong growth in the energy and materials sectors.
Iran tensions keep pressure on sentiment
Geopolitical developments continued to limit risk appetite as efforts to resolve the U.S.-Iran conflict remained stalled.
Oil futures gained around 1% to $87.93 a barrel after the United States threatened an indefinite naval blockade of Iran, renewing concerns about potential disruption to global crude supplies.
Negotiations between Washington and Tehran remained deadlocked, with increasingly firm rhetoric from both sides reducing expectations of an imminent resolution.
Meanwhile, softer U.S. consumer and producer inflation readings released during the week reinforced expectations that the Federal Reserve could avoid further aggressive monetary tightening.
Investors were also awaiting euro zone employment and GDP figures scheduled for 0900 GMT for further indications about the health of the regional economy.
Technology leads while basic resources retreat
European technology stocks led sector gains, advancing 1.4%, while basic resources represented the weakest part of the market with a decline of 1.6%.
Company-specific news was relatively limited as the European earnings season moved towards its conclusion, leaving macroeconomic and geopolitical developments as the main drivers of market sentiment.
Oil heads for first weekly gain in three weeks
Energy markets remained one of the biggest obstacles to a broader European equity rally.
Crude oil was on course for a weekly increase of around 4%, putting prices on track to end a two-week losing streak after a volatile period of trading.
Brent crude moved back towards multi-week highs as Washington adopted a more aggressive stance towards Tehran.
The United States threatened to intensify maximum economic pressure against Iran, including the possibility of maintaining a naval blockade if commercial shipping access through the Strait of Hormuz is not restored.
The escalation reduced hopes for an immediate peace agreement and maintained pressure on European industries vulnerable to higher energy and raw material costs.
Investors digest heavy week of economic data
European markets also absorbed a series of important economic releases during the week.
UK gross domestic product expanded 0.4% during the second quarter, matching expectations, while Germany’s final July consumer inflation figures confirmed that annual inflation accelerated to 2.8%.
In the United States, July consumer prices increased 3.4% year on year, in line with expectations, while the headline Producer Price Index was unchanged from the previous month.
Combined with the unexpected contraction in U.S. payrolls reported the previous week, the softer inflation signals helped reduce concerns that the Federal Reserve would need to tighten monetary policy aggressively heading into the autumn.
Money markets subsequently lowered the implied probability of a 25-basis-point Fed rate increase in September to around 35%, compared with almost 67% a week earlier.
The reduction in interest-rate risk provided some support for equities, although continued disruption in energy markets prevented a more substantial rally. With Persian Gulf tensions unresolved and the European earnings season winding down, investors remained cautious even as major indices traded close to record highs.
Energiekontor falls while NKT rallies
Among individual stocks, Energiekontor (TG:EKT) dropped 15% after lowering its full-year outlook.
NKT (TG:NKT) moved sharply in the opposite direction, gaining 10% after raising its annual guidance.
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