European Stocks Slide as Oil Surge and Rate Uncertainty Weigh on Sentiment

European stock markets moved lower on Thursday, as investors turned cautious ahead of key central bank decisions and mounting geopolitical tensions in the Middle East.

By 04:17 ET (08:17 GMT), the pan-European Stoxx 600 fell 1.2%, while:

• Germany’s DAX dropped 1.6%
• France’s CAC 40 declined 1.1%
• The U.K.’s FTSE 100 slipped 1.2%

Central banks in focus

Markets are bracing for policy announcements from the European Central Bank (ECB) and the Bank of England (BoE) later in the session, with both widely expected to hold interest rates steady.

This follows similar decisions from the Federal Reserve, Bank of Japan, and Bank of Canada, which all kept rates unchanged but warned that inflation risks could rise if the conflict in the Middle East continues.

Policymakers now face a difficult balancing act—managing rising inflation without further weakening economic growth.

Stagflation fears rise

Concerns about stagflation—a mix of weak growth and high inflation—have intensified, drawing comparisons to the energy shock that followed Russia’s invasion of Ukraine in 2022.

As a result, investors are adopting a more defensive stance, scaling back expectations for near-term rate cuts, reducing exposure to equities, and shifting toward safer assets like the U.S. dollar.

Oil surge adds pressure

Energy markets remain a key driver of sentiment, with oil prices surging again on Thursday.

Brent crude jumped above $110 per barrel, supported by escalating attacks on energy infrastructure across the Middle East, including the critical South Pars gas field.

By 02:59 ET (06:59 GMT):

• Brent crude surged 6.0% to $113.74 per barrel
• WTI crude rose 1.0% to $96.26 per barrel

Analysts warn that supply risks are intensifying, particularly as tensions escalate in the Persian Gulf region.

Market dynamics shift

WTI continues to trade at a steep discount to Brent, partly due to the release of U.S. strategic oil reserves, which has helped cushion domestic supply.

However, globally, tightening energy markets and geopolitical uncertainty are driving volatility and weighing heavily on risk assets.

Outlook

With central bank decisions looming and oil prices surging, European markets are likely to remain under pressure.

Investors will be closely watching policy signals and developments in the Middle East, as fears of prolonged inflation and slowing growth continue to shape market direction.