European stocks edge up but face worst week since April

A week of relentless selling driven by surging oil prices, hawkish central banks, and rising bond yields left global equity markets nursing steep losses, even as European stocks staged a modest rebound on Friday ahead of a closely watched U.S. inflation report.

ECB Hike and Oil Surge Hammer Markets

The pan-European STOXX 600 rose 0.3% in early Friday trading to 637.60 points but remained on course for its worst weekly performance since April, according to Reuters. The index had closed at a two-month low of 635.97 on Thursday after the European Central Bank raised interest rates by 25 basis points to 2.5%, its second increase this year, and warned that inflation risks were "to the upside" as energy prices soar amid the prolonged Middle East conflict.wmbdradio+1

ECB President Christine Lagarde said at a post-meeting press conference that price pressures could remain above target for an extended period, though she stressed the bank had not pre-committed to future moves. Germany's 10-year bond yield rose to its highest level since 2011, while traders priced in a further 60 basis points of rate increases by April 2027.businesstimes

Brent crude remained above $100 a barrel for a third consecutive day after the biggest spike in attacks on shipping since the Iran war began. The U.S. 10-year Treasury yield hovered just below the closely watched 5% threshold.economictimes+2

Global Rout Deepens

The selling was not confined to Europe. Britain's FTSE 100 logged its fifth straight daily decline on Thursday, closing at a more than one-month low of 10,608.92 points, Reuters reported. In Asia on Friday, the MSCI Asia-Pacific index excluding Japan fell 1.8%, while Japan's Nikkei 225 tumbled 2.8%. On Wall Street, the Dow Jones Industrial Average and S&P 500 each fell about 0.6% on Thursday, marking a fourth consecutive daily decline.reuters+2

A hotter-than-expected U.S. Producer Price Index reading on Thursday added to the pressure, swinging market expectations toward a Federal Reserve rate hike at its September 15-16 meeting.globalbankingandfinance

All Eyes on U.S. CPI

Investors now await the U.S. Consumer Price Index report, scheduled for release at 8:30 a.m. Eastern time on Friday. Headline CPI is expected at around 3.4% year-on-year for August, little changed from 3.4% in July. A stronger-than-expected reading could reinforce expectations for tighter Fed policy and put further pressure on equities, while softer data could ease concerns over the pace of future rate increases.features.financialjuice+2

"Bessent has laid down the gauntlet to a group of sophisticated traders who don't like to be told what to do," said Matt Simpson, senior market analyst at StoneX, referring to Treasury Secretary Scott Bessent's bond buyback efforts. "He may win a battle or two, but he'll only win the war if bond traders let him."globalbankingandfinance