Key Takeaways

• Broad recovery: The Stoxx 600 rose 0.6% after hitting a three-week low Wednesday; FTSE 100 gained 0.7%, Italy’s MIB jumped 1.1%, Germany’s DAX was flat near three-week lows.
• Buy-the-dip mentality intact: “Each pullback over the past week has attracted fresh demand, preventing a deeper correction from taking hold,” said Daniela Hathorn of capital.com.
• ECB hike all but certain: The central bank is widely expected to raise its deposit rate by 25 basis points to 2.25% — its first increase since 2023.
• Stagflation risk looms: Higher borrowing costs arriving just as energy prices surge threatens business investment, consumer spending, and corporate margins.
• September follow-up priced in: Markets have fully priced another ECB hike in September; all eyes on Lagarde’s press conference tone.
• Lloyds’ Hill’s read: Lagarde “won’t want to fully commit” to September but equally won’t try to “dissuade markets from where they are already at.”
• Bond yields stay elevated: European government yields remain high, tempering demand for risk assets.
• U.S.-Iran strikes continue: The two sides exchanged air attacks for a second straight day; Trump warned of further action unless Tehran accepted an immediate deal.
• Peace hopes fade again: Renewed hostilities reversed recent diplomatic optimism and raise fears of another inflation wave.
• Hugo Boss surges 8.4%: Frasers Group launched a €2 billion takeover offer for the German fashion brand.
• Frasers falls 2.2%: The acquirer’s shares retreated on the deal announcement.
• SAP drops 4%, Capgemini falls 3.2%: European tech lagged after Oracle’s aggressive capex plans prompted a sector-wide valuation reassessment.
• Wizz Air jumps 6%: The budget airline reported annual profit above estimates.

European stocks advanced on Thursday as investors snapped up beaten-down shares after weeks of pressure from higher-for-longer interest-rate expectations, while attention remained firmly fixed on the European Central Bank’s looming policy decision.

The pan-European Stoxx 600 rose 0.6% by 0945 GMT after closing at its lowest point in over three weeks in the previous session. London’s FTSE 100 was up 0.7% after hitting its lowest level since late March on Wednesday. Germany’s DAX was flat, continuing to hover near three-week lows, while Italy’s FTSE MIB jumped 1.1%.

“The ‘buy-the-dip’ mentality remains firmly intact. Each pullback over the past week has attracted fresh demand, preventing a deeper correction from taking hold,” said Daniela Hathorn, senior market analyst at capital.com.

ECB Rate Hike All But Priced In

The European Central Bank is widely expected to raise its key deposit rate by 25 basis points to 2.25% when policymakers announce their decision at 1215 GMT. If delivered, the move would mark the central bank’s first rate increase since 2023 — underscoring policymakers’ determination to keep inflation pressures in check despite a weakening growth backdrop.

For investors, the prospect of tighter monetary policy arriving just as energy prices surge presents a difficult backdrop. Higher borrowing costs threaten to weigh on business investment and consumer spending, while elevated fuel and utility prices risk squeezing corporate margins — particularly in energy-intensive sectors.

The expected move has also prompted markets to dial back bets on ECB rate cuts later this year, removing a key source of support for European equities over recent months.

European government bond yields remained elevated ahead of the decision, further tempering demand for risk assets.

“How far ECB President Christine Lagarde goes during the press conference towards underpinning existing expectations for a fully priced follow-up move in September is the key issue,” said Sam Hill, head of market insights at Lloyds Bank.

“She won’t want to fully commit to it so far in advance, but equally don’t look for her to try too hard to dissuade markets from where they are already at.”

War Jitters Persist

Investor caution was also underpinned by renewed geopolitical uncertainty after the United States and Iran exchanged air strikes for a second consecutive day. President Donald Trump warned that further military action could follow unless Tehran agreed to an immediate peace deal.

The renewed hostilities have further dimmed hopes for a diplomatic breakthrough between Washington and Tehran, reversing some of the optimism that had recently buoyed global markets. Investors remain wary that a prolonged conflict could threaten energy supplies from the Middle East — potentially fueling another wave of inflation at a time when central banks are still battling stubborn price pressures.

Individual Stock Movers

Hugo Boss jumped 8.4% after Frasers Group launched a €2 billion takeover offer for the German fashion brand. Frasers lost 2.2% on the deal announcement.

European technology shares lagged the broader market after Oracle unveiled aggressive capital spending plans, prompting investors to reassess valuations across the sector. SAP fell almost 4%, while Capgemini dropped 3.2%.

Wizz Air jumped about 6% after reporting annual profit above estimates.