European stocks ended Friday at their highest level in more than five months, boosted by expectations of a U.S. interest rate cut in September. The rally followed Federal Reserve Chair Jerome Powell’s speech at the Jackson Hole Symposium, where he signaled the possibility of policy easing.
The pan-European STOXX 600 index rose 0.4%, finishing less than 1% below record levels and marking its third consecutive week of gains. Most major regional markets also closed in positive territory.
Powell’s comments increased confidence that the Fed could lower rates at its September 16–17 meeting, though he emphasized that upcoming U.S. jobs and inflation data will be crucial. Following his remarks, traders raised the probability of a September rate cut to nearly 90%, compared to around 75% before his speech.
Ipek Ozkardeskaya, Senior Analyst at Swissquote Bank, noted: “The fact that the Fed is preparing to deliver the 25 basis point rate cut markets expected is creating strong euphoria. A dovish Fed is generally supportive for global financial markets.”
In sector moves, mining stocks led gains with a 1.6% rise, tracking copper prices that hit a one-week high. Consumer-focused sectors also advanced, with automobiles up 1.4% and travel and leisure shares rising 1.3%. Insurers, however, lagged with a 0.6% decline.
Despite the strong momentum, UBS struck a cautious tone, remaining neutral on eurozone equities. The bank trimmed its 2025 earnings growth forecast for the region to -3% from a flat outlook, citing ongoing macroeconomic uncertainty.
Geopolitical concerns also weighed on sentiment, as optimism over Russia and Ukraine peace talks with the U.S. faded. Ozkardeskaya warned that delays in progress could increase the risk of prolonged instability, negatively affecting European markets.
Economic data added pressure, with Germany reporting a larger-than-expected 0.3% GDP contraction in the second quarter of 2025.
On the corporate front, AkzoNobel surged 6.8% after activist investor Cevian Capital disclosed a 3% stake, boosting the chemicals sector. Standard Chartered gained 4.2% following a favorable U.S. Department of Justice ruling in a long-standing civil case.
Meanwhile, Polish banks tumbled after the finance ministry proposed a higher corporate income tax. PKO BP dropped 12.2% and Pekao fell 11.2%, with PKO posting its steepest one-day decline since February 2022.
