European Stocks Stall as $100 Oil and New US Tariffs Fuel Rate Hike Fears

European shares were little changed on Friday as a sharp rise in oil prices and new U.S. trade tariffs stoked fears of persistent inflation, overshadowing corporate earnings and cementing expectations for higher-for-longer interest rates.

The pan-European STOXX 600 index hovered near the flatline in early trading, struggling for direction as investors weighed the dual threats of rising energy costs and protectionist trade policies.

Geopolitical and Trade Pressures Mount

Market sentiment soured after global oil prices surged, with Brent crude jumping more than 7% to trade above $100 a barrel for the first time in months. The spike followed U.S. warnings of potential military action against Iran and Yemen's Houthis in response to attacks on commercial shipping, according to reports. This development reignites concerns about a secondary inflation shock for energy-importing European economies.

Compounding the anxiety, the White House announced new tariffs ranging from 10% to 12.5% on imports from 60 trading partners, including the European Union, citing forced-labor enforcement. The move creates a significant headwind for European exporters already facing fragile global demand.

Market Impact and Rate Outlook

The combination of surging energy prices and trade friction sent Eurozone borrowing costs to 15-year highs. Fixed-income markets are now pricing in a greater probability that both the European Central Bank and the U.S. Federal Reserve may need to consider further interest rate hikes this year to anchor inflation expectations.

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Investors are now looking ahead to the release of flash Eurozone Purchasing Managers’ Index (PMI) data, which is expected to confirm that regional business activity remains stagnant. Across major indexes, performance was mixed:

• Germany's DAX rose 0.5%.
• France's CAC 40 and London's FTSE 100 each fell 0.1%.
• Italy's FTSE MIB gained 0.2%.

Sector and Stock Movers

Gains in energy giants like Shell and BP, lifted by higher crude prices, provided some support for the broader market. However, risk appetite was limited by weakness in the technology sector and disappointing corporate updates.

Among individual stocks, French video game maker Ubisoft fell 4% after reporting its first-quarter sales figures. German automaker Volkswagen AG also declined 3% following the release of its quarterly results and outlook.