Key Takeaways

• The STOXX 600 rose 0.2%, with the DAX up 0.4%, CAC 40 up 0.3%, and FTSE 100 up 0.1%.
• Europe is on track for a second straight weekly gain, though a modest 0.6% trails Asia’s 1%+ rallies.
• A hawkish Fed surprise has markets pricing an 80% chance of an October rate hike.
• The FTSE 100 is set for a 0.9% weekly loss, dragged by BP and Shell on falling crude.
• VP JD Vance pulled out of Geneva talks with Iranian negotiators, clouding the outlook for the truce.

European stocks edged higher in early trading on Friday, caught between a shaky Middle East truce and lingering anxiety over a hawkish Federal Reserve outlook.

The pan-European STOXX 600 was last higher by 0.2%, while Germany’s DAX was up 0.4%. France’s CAC 40 added 0.3% and the FTSE 100 in the U.K. rose 0.1%.

U.S. Vice President JD Vance backed out of a planned trip to meet Iranian negotiators in Switzerland, scheduled later in the day to begin talks on implementing the 14-point agreement struck between Washington and Tehran.

Europe locks in weekly gains, but Fed caps the upside

European stocks are on course for a second straight winning week, riding a landmark peace deal that reopened the Strait of Hormuz. The news sent crude prices tumbling, offering relief to European markets that had been weighed down by fears of a prolonged inflation shock.

Still, Europe’s modest 0.6% weekly gain looks sluggish next to the over-1% rallies seen in Asia. A surprise mid-week hawkish turn from the Federal Reserve weighed on sentiment, with most policymakers now eyeing a rate hike before year-end. Traders scrambled to rewrite their playbooks, and markets are now pricing an 80% chance of an October hike.

FTSE 100 lags on energy weakness, political uncertainty

London’s FTSE 100 bucked the broader trend, on track for a 0.9% weekly loss, dragged down by energy majors BP and Shell amid falling crude prices. The index opened 0.1% lower.

British stocks were also in focus after Labour MP Andy Burnham won a parliamentary seat, clearing a path toward a potential challenge to Prime Minister Keir Starmer.

Airlines rally on cheaper oil

Airline stocks, including Lufthansa, Air France-KLM, and British Airways-owner IAG, all gained this week as falling oil prices eased pressure on fuel costs.