European Stocks End Two-Week Losing Streak on Fed's Inflation Stance

European equities are on track to snap a two-week losing streak, rebounding from steep early-week losses after the U.S. Federal Reserve’s latest interest rate hike bolstered investor confidence in the central bank's inflation-fighting resolve.

Weekly Rebound Follows Mid-Week Lows

The pan-European Stoxx 600 index was set for a weekly gain of 0.54%, according to a report from Investing.com. The advance came despite a modest pullback on Friday, where the benchmark slipped 0.21%. Other major indices also saw minor declines in the session, with Germany’s DAX and France’s CAC 40 both falling 0.4%, while London’s FTSE 100 dipped 0.3%.

The weekly gain marks a significant turnaround after a volatile period for European markets. On Tuesday, the Stoxx 600 was driven down to its lowest level since June amid escalating geopolitical tensions and their impact on commodity prices.

Fed Rate Hike Pivots Market Sentiment

The initial sell-off was catalyzed by an attack on a major Saudi Arabian oil pipeline and Houthi strikes in the Red Sea. The events drove Brent crude prices past $113 a barrel and pushed the U.S. 10-year Treasury yield above 5% for the first time since 2007, according to the report.

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Market sentiment shifted dramatically on Thursday after the U.S. Federal Reserve unanimously voted to raise its benchmark interest rate by 25 basis points to a range of 3.75% to 4.00%. Investors viewed the move as a firm commitment to taming energy-driven inflation, sparking the Stoxx 600’s best single-day performance in over two months.

Adding to a dense week of central bank news, the Bank of England held its key rate steady at 3.75%. However, policymakers warned in a 6-3 vote that persistent energy price pressures could necessitate a hike in November.

Energy Markets Remain in Focus

While oil prices eased on Friday, they remained a key factor for investors. Brent crude futures fell 1.5% to trade around $104 a barrel but were still up nearly 15% for the week. The daily decline was attributed to signs that shipping companies are finding alternative routes to bypass Persian Gulf bottlenecks.

Rate-sensitive sectors felt the pressure from higher yields on Friday. An index of European luxury and personal goods manufacturers, for example, slipped 0.4% as the higher cost of capital continues to test equity valuations.