European stocks struggled for direction on Friday after a difficult week of selling.
Markets remained close to multi-week lows, although softer comments from Federal Reserve officials provided some relief ahead of the latest US jobs report.
The pan-European STOXX 600 stayed near its lowest level in more than a month and remained on track for its sharpest weekly decline since early July.
European Markets Stabilize After Heavy Sell-Off
Germany’s DAX rose around 0.2%, while France’s CAC 40 slipped 0.2%.
London’s FTSE 100 was little changed.
The broader weakness followed a sharp global bond sell-off, rising energy prices and renewed concerns over central bank interest rates.
Higher borrowing costs have weighed heavily on growth-sensitive sectors, including technology and real estate.
Bond Yields Reach Multi-Year Highs
European government bond yields climbed sharply during the week.
Germany’s 10-year Bund yield reached around 3.37%, its highest level since 2011.
The two-year German Schatz yield also moved toward 2.98%.
Higher bond yields can make equities less attractive because investors can earn stronger returns from lower-risk government debt.
This often puts additional pressure on companies with high valuations and long-term growth expectations.
Oil Prices Add to Inflation Concerns
Energy markets also contributed to investor uncertainty.
Renewed US-Iran tensions around the Strait of Hormuz disrupted commercial shipping and pushed crude oil prices higher.
Brent crude remained near six-week highs and was heading for a weekly gain of around 7%.
The rise in energy costs revived concerns about inflation across Europe.
Higher oil prices can increase costs for industrial companies, utilities and exporters, while also making the inflation outlook more difficult for central banks.
Waller and Williams Ease Fed Rate Hike Fears
Selling pressure eased after Federal Reserve Governor Christopher Waller delivered more cautious comments on monetary policy.
Waller said recent economic data showed encouraging signs that inflation was cooling.
He added that he would support keeping interest rates unchanged at the Fed’s September 15-16 meeting if upcoming reports confirmed that trend.
New York Fed President John Williams also supported a more patient approach, emphasizing the need to wait for more economic data.
September Fed Hike Odds Fall
Markets reacted quickly to the comments.
The probability of a 25-basis-point Federal Reserve rate hike in September fell from nearly 65% to around 50%.
That effectively left traders viewing the upcoming policy decision as a coin toss.
The shift in expectations triggered a relief rally across Asian markets and helped government bond yields retreat from recent highs.
This gave European markets some room to stabilize.
US Jobs Report Becomes Key Market Test
Investors are now focused on the upcoming US nonfarm payrolls report.
The labor market data could play a major role in determining the Federal Reserve’s next move.
A weaker employment report could strengthen the case for keeping rates unchanged in September.
However, stronger-than-expected jobs data could revive expectations for another rate increase.
The report will also be closely watched ahead of next week’s US Consumer Price Index data.
Bank of America analysts warned that a renewed hawkish shift in Fed expectations and another increase in real yields could create further downside risks for European equities.
Volkswagen Leads DAX Gains
Among individual stocks, Volkswagen was one of the strongest performers.
Shares rose around 5.7%, making the automaker the top gainer on the DAX.
The move followed an agreement between Volkswagen’s supervisory board, unions and Lower Saxony over the company’s turnaround strategy.
The deal reduced concerns that internal tensions could escalate further.
For now, European markets remain caught between easing Fed rate fears, high bond yields, elevated oil prices and uncertainty ahead of key US economic data.
