European stocks remained under pressure on Friday, trading close to two-month lows and heading for their worst weekly performance since April.
A sharp rise in oil prices and a more hawkish European Central Bank rate hike have increased concerns about a prolonged period of weak growth and persistent inflation across the region.
European Stocks Hover Near Two-Month Lows
The Stoxx Europe 600 Index edged around 0.3% higher, but remained close to its lowest level in eight weeks.
The benchmark is on track to lose more than 2% for the week, which would mark its weakest weekly performance in about five months.
Investors are increasingly adjusting portfolios for a combination of higher borrowing costs and continued pressure from elevated energy prices.
Germany’s DAX gained around 0.3%, while France’s CAC 40 rose roughly 0.5%.
London’s FTSE 100 also moved slightly higher, adding around 0.1%.
Oil Prices Add Pressure to European Markets
Energy prices remain one of the biggest sources of stress for European markets.
Brent crude climbed to a four-month high near $109.97 per barrel, putting it on course for a weekly gain of almost 13%.
The rally has been driven by growing fears that geopolitical tensions could disrupt global oil supplies.
Higher energy prices are particularly important for Europe because they can increase costs for both companies and households.
Middle East Tensions Threaten Energy Supply
Tanker traffic through the Persian Gulf remains heavily restricted following military exchanges involving U.S. forces and Iranian naval assets.
The situation has also become more complicated in the Red Sea.
Iran-aligned Houthi forces reportedly seized control of Yemen’s port of Mocha, raising concerns about Saudi Arabia’s western oil export routes.
This has increased fears that shipping disruptions could spread across multiple strategic energy corridors.
ECB Raises Rates to Fight Inflation
European markets are also reacting to Thursday’s European Central Bank policy decision.
ECB President Christine Lagarde and the Governing Council raised the deposit facility rate by 25 basis points to 2.50%.
That brought the benchmark rate to its highest level since April 2025.
The move surprised some investors who had previously expected the ECB to remain on hold.
Energy Inflation Pushes ECB Toward Tighter Policy
The ECB’s decision reflects growing concern that rising energy and raw material costs could keep inflation elevated.
Eurozone headline inflation accelerated to 3.3% in August, while energy prices jumped 14.3%.
With crude oil trading above $100 per barrel, policymakers are increasingly concerned that inflation could remain well above the ECB’s 2% target.
Money markets are now pricing a greater than 90% probability of another ECB rate increase before the end of the year.
Higher Rates Weigh on European Equities
The combination of rising bond yields and higher input costs has created a difficult environment for stocks.
Rate-sensitive sectors have faced some of the heaviest pressure.
Growth stocks, industrial companies and consumer discretionary shares have all been hit as investors reduce exposure to businesses that may struggle with higher financing and operating costs.
U.S. CPI Becomes the Next Major Market Test
Attention is now shifting toward the latest U.S. Consumer Price Index report.
The data could have a major impact on expectations for the Federal Reserve’s next policy decision.
Last week’s stronger-than-expected U.S. employment report showed 162,000 new jobs, increasing confidence in the resilience of the economy.
A hotter-than-expected inflation reading could further strengthen expectations for a Federal Reserve rate hike at its September 15-16 meeting.
European Stocks Face Continued Volatility
Markets are now dealing with a difficult mix of rising interest rates, high energy prices and geopolitical uncertainty.
With both the ECB and Federal Reserve maintaining restrictive policy signals, investors are preparing for continued volatility heading into the autumn.
For European stocks, the next direction may depend heavily on oil prices, inflation data and the outlook for central-bank policy.
