European Stocks Cut Gains

European stocks closed sharply lower on Friday as war in the Middle East continued to trigger surges in energy prices and threaten the European economic outlook. The Eurozone's STOXX 50 dropped 1.3% to 5,707, a 7.2% plunge on the week, and the pan-European STOXX 600 dropped 1.2% to 598, a 5.7% drop on the week. European bond yields rose further as the rally for natural gas and crude oil prices supported the outlook that the ECB may have to respond with a rate hike, pressuring banks as higher credit costs hurt their lending outlook. Deutsche Bank and Intesa Sanpaolo dropped 3.5% and 2.5%, respectively. Credit-sensitive companies in the AI space were also under pressure, with ASML dropping 3.3% and Infineon tanking 7%. Higher costs for metals and shipping constraints pressured major car producers in Germany, with Volkswagen and BMW dropping more than 3% each.

European stocks erased early gains and moved into negative territory on Friday, with the EURO STOXX 50 falling 0.4% and the STOXX Europe 600 declining 0.3%, extending weekly losses as energy prices resumed their rally. The situation in the Middle East remains unresolved, with uncertainty surrounding the conflict with Iran lingering as the war enters its seventh day. Concerns that surging energy prices, particularly crude oil and natural gas, could trigger an inflation spiral are weighing on equity markets globally. Basic materials, healthcare, technology and utilities were the worst-performing sectors. ASML Holding fell about 3%, while Roche dropped 2.7% after mid-stage trial results for an experimental obesity treatment developed with Zealand Pharma disappointed investors. Both indices remain sharply lower for the week, with the STOXX 50 down 5.8% and the STOXX 600 off 4.6%, marking their biggest weekly declines since April last year.

European stocks traded higher on Friday, with the STOXX 50 rising 0.5% and the STOXX 600 gaining 0.2%, as a pause in the recent energy market rally helped improve investor sentiment. However, the situation in the Middle East remains unresolved, with uncertainty surrounding the conflict with Iran lingering as the war enters its seventh day. Industrials and consumer cyclicals led sector gains. LVMH (1%), Hermes (1%), SAP (2%) and Siemens (1.4%) moved higher. Defense stocks were also among the top gainers, including Dassault Aviation (4.3%), Rheinmetall (3.3%) and Leonardo (2.6%). Meanwhile, shares of Lufthansa jumped 3% after the airline reported earnings that beat expectations. On the downside, ASML Holding (-1.1%), Roche (-2.7%), Novartis (-1.3%) and Unilever (-0.6%) all traded lower. Despite Friday’s rebound, both indices remain sharply lower for the week, with the STOXX 50 down 5.8% and the STOXX 600 off 4.6%, marking their biggest weekly declines since April last year.