Europe Markets Weekly — 2026-05-10
European equity markets endured a turbulent week, swinging between Middle East peace optimism and fresh headwinds from renewed U.S. tariff threats against the EU. A mid-week rally on Strait of Hormuz reopening hopes was reversed by Friday's selloff as Trump warned of new levies on European goods, leaving major indices broadly lower on the week. The outlook remains clouded by stagflationary pressures — eurozone inflation at 3% against near-stalling growth — and unresolved geopolitical risk.
Europe Markets Weekly — 2026-05-10
Market Snapshot
- STOXX 600: Down on the week, retreating after Middle East tensions flared and Trump renewed tariff threats; mid-week gains reversed by Friday's close
- DAX: Lower on the week (-1.32% indicated in latest session data), pressured by tariff concerns and mixed macro data
- FTSE 100: Slipped on the week amid Trump EU tariff warnings and UK political focus on local election results
- CAC 40: Lower on the week (-1.09% indicated in latest session data), tracking broad European weakness
Key Drivers
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Trump EU tariff threat triggers Friday selloff: European equity markets closed lower on Friday after U.S. President Donald Trump threatened new tariffs on the European Union, erasing much of the week's earlier gains. The FTSE slipped while DAX and CAC finished the week in the red.
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Mid-week rally on Strait of Hormuz optimism, then reversal: European shares had soared to a two-week high Wednesday after Iran's Islamic Revolutionary Guard Corps navy announced the Strait of Hormuz could reopen following the end of hostilities, and Trump cited "great progress" toward a comprehensive peace agreement with Iran. The rally proved short-lived as Middle East tensions flared again by Thursday.
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Norway's Norges Bank rate hike adds pressure: Norway's central bank raised interest rates to curb domestic inflation, adding to the broader monetary tightening narrative across the region. The pan-European STOXX 600 ended Thursday's session in the red, reversing morning gains, as investors digested the Norwegian rate move alongside persistent Middle East uncertainty.
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European corporates heading for best earnings growth in three years: Despite the macro headwinds, Q1 earnings data provided an underpinning for equities: blue-chip European companies are now expected to have grown earnings 10.2% year-on-year in Q1 on average, based on results from 211 STOXX 600 companies that have already reported, according to LSEG I/B/E/S data compiled by MarketScreener.
Earnings & Corporate
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Best Q1 earnings season in three years underway: With 211 STOXX 600 companies having reported, European blue-chips are tracking 10.2% year-on-year earnings growth in Q1 on average, according to LSEG I/B/E/S data. This represents a significant acceleration from recent quarters and is the strongest showing in three years, providing some fundamental support even as macro and geopolitical headwinds weigh on sentiment.
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Seeking Alpha flags mixed picture across major indices: A report from Seeking Alpha noted that the FTSE slipped while DAX and CAC initially rose, with the STOXX 600 trading flat on the day before Trump's EU tariff warning landed — highlighting the fragility of sentiment and the outsized impact of U.S. trade policy headlines on European equities this week.
Geopolitics & Energy
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Strait of Hormuz reopening hopes deflate oil prices mid-week, but tensions return: Oil and gas prices fell sharply mid-week after Iran's Revolutionary Guard announced the Strait of Hormuz could reopen as the U.S.-Iran peace process progressed. However, renewed Middle East tensions by late in the week reversed part of those moves, contributing to the broader European equity selloff. The ECB delivered a dedicated speech on "the new energy shock: economic scenarios and policy implications," underscoring how central energy market volatility remains to the eurozone outlook.
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EU weighs suspending methane fines for oil and gas companies: The European Commission has drafted plans to allow oil and gas companies to avoid penalties for breaching the EU's methane emissions law during energy emergencies, according to a draft document seen by Reuters. The move follows pressure from industry and the U.S. government, and signals Brussels is willing to ease regulatory pressure on energy suppliers amid ongoing supply uncertainty stemming from the Iran conflict.
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European renewable energy investment reframed as a security issue: A new analysis published this week argues that European renewable energy investment is increasingly being driven by energy security and price stability concerns rather than purely climate goals — a shift in framing accelerated by the fossil fuel price shocks of the Iran war.
What to Watch Next Week
- ECB rate path: With eurozone inflation at 3% and Q1 GDP growth barely positive at 0.1%, markets will parse any fresh ECB communications for signals on whether the rate hold at 2% will be maintained or if cuts are back on the table — particularly if Middle East tensions ease further and oil prices fall.
- Middle East peace negotiations: The trajectory of U.S.-Iran talks and the status of the Strait of Hormuz will remain the single biggest macro variable for European energy-exposed sectors. Any formal agreement or breakdown could trigger sharp moves across equities and oil.
- U.S.-EU trade tensions: Following Trump's renewed tariff threats, watch for any formal proposals from the U.S. Trade Representative or retaliatory measures from Brussels — European exporters, particularly in autos and industrials, remain highly exposed.
- Continued Q1 earnings releases: With a majority of STOXX 600 companies still to report, the earnings season will continue to provide either fundamental support or additional headwinds depending on guidance for the remainder of 2026.
- UK political developments: The UK local election results and their implications for the Starmer government's economic agenda will remain in focus for FTSE investors.
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