European equities snapped a four-day losing streak, with energy shares leading gains in the index while the European Central Bank’s first interest-rate hike in three years lifted banks.
The Stoxx Europe 600 Index closed 0.5% higher. Brent crude whipsawed to rise above $93 a barrel after President Donald Trump warned that the US would be hitting Iran “VERY HARD TONIGHT.” The energy subindex added almost 2%, for its biggest daily gain in a month, while banks advanced 0.6%.
The ECB raised interest rates to 2.25% as expected and warned inflation was widening out beyond energy. It also raised its inflation view for 2026 and 2027.
However, investors are divided over how much the ECB can tighten policy. Money markets are pricing two more rate hikes by year-end but with higher energy prices clouding the economic outlook, the bank has also cut its growth forecasts.
While the ECB hike was a “significant moment,” policymakers are unlikely to tighten policy much further, said Mark Wall, chief European economist at Deutsche Bank AG.
“The question is ‘how far can this tightening cycle go?’ Not far, is our answer,” Wall said. “There is upside risk to inflation, but there is also downside risk to growth. One more hike in September and that’s it.”
Software stocks dropped after Oracle Corp.’s earnings showed weak sales from this segment of its business. SAP SE closed down after recovering from losses of 7%.
By contrast, chipmakers rallied as Oracle’s earnings also unveiled higher data centers spending than analysts had expected. ASML International NV jumped more than 5%.
Among individual movers, Deutsche Telekom AG slid as much as 4.6% after the Wall Street Journal reported the German firm is trying to push through a merger with T-Mobile US. Hugo Boss AG rallied more than 9% after Frasers Group Plc offered to buy out the German label for about €2 billion ($2.3 billion).
After trailing their US counterparts for three months, European stocks have finally stopped underperforming in June. Expectations that a resolution to the Iran war isn’t too far away, combined with increasing worries about AI hype are suddenly making Europe look like a good diversifier again.
For more on equity markets:
- Europe Is Again Beating the US as AI Trade Cracks: Taking Stock
- Trump Praises Citi, CEO Jane Fraser on ‘Big Comeback’
- WH Smith Taps Cash Intraday as Iran War Hurts Sales: ECM Watch
- Stock Index Futures Volatile After Latest US Strikes on Iran
- War Chest Woes: The London Rush
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