Europe Markets Weekly — 2026-07-25

Market Snapshot

• STOXX 600: +1.1% Friday (posted weekly gains despite 0.9% Thursday drop)
• DAX: +1.3% Friday; -1.8% on Thursday ECB announcement
• FTSE 100: Flat Friday; down with broader indices on Thursday
• CAC 40: +0.1% Friday; -1.6% on Thursday after ECB decision

Key Drivers

• ECB Holds Rates but Signals September Action: The European Central Bank held its deposit facility rate at 2.25% on Thursday but left the door open to future rate hikes amid persistent inflation concerns. President Christine Lagarde indicated that inflation is anticipated to remain "well above target" until the first half of 2027, prompting traders to price in a September rate hike. The neutral-yet-hawkish guidance triggered immediate selling across equities and bond weakness, with the STOXX 600 deepening losses post-announcement.

• Oil Surge and Energy Sector Strength Lift Markets: Escalating Middle East tensions and Houthi strikes pushed oil prices sharply higher, with energy stocks rallying on Friday to lead the STOXX 600's recovery. The surge in crude prices is underpinning a remarkable earnings season: STOXX 600 companies are expected to report 17.3% earnings growth in Q2, with revenue rising 11.5%—the best performance since late 2022—driven by surging energy-sector profits.

• Technology Rebound Anchored by SAP: German software giant SAP surged 6.2% on Friday, spearheading a tech sector recovery after Thursday's selloff. The gain helped Germany's DAX recoup losses from the ECB-driven downturn, signaling renewed appetite for quality earnings growth despite lingering rate-hike fears.

Earnings & Corporate

• STOXX 600 Earnings Growth Reaches 17.3% on Energy Outperformance: Companies on Europe's benchmark index are expected to deliver 17.3% earnings growth in Q2 based on 77 reported results and forward estimates, marking the strongest growth in three years. Revenue expansion of 11.5% represents the best multi-quarter performance since late 2022, ending a 13-quarter drought. Energy heavyweights like TotalEnergies and Repsol have posted upbeat Q2 updates as oil-price-driven profits offset weakness in cyclical sectors.

• European Corporate Outlook Continues to Improve Amid Earnings Season: LSEG I/B/E/S data confirms that earnings estimates for European blue-chip companies have improved as energy-sector profits surge, providing robust support for valuations and offsetting technology and consumer sector headwinds.

Geopolitics & Energy

• EU Approves 21st Sanctions Package Against Russia with Compromises: The European Union agreed Thursday on a new sanctions package targeting Russian banks and energy infrastructure, freezing the crude oil price cap at $44.1 per barrel for one year. However, Greece secured a carve-out exemption to continue shipping Russian liquefied natural gas (LNG) to non-EU clients, exposing fractures in EU unity on Russia policy as member states prioritize energy and shipping interests.

• Energy Price Volatility Complicates ECB's Rate Path: Oil's surge to $100+ per barrel amid Middle East escalation is renewing inflation fears that could force the ECB to move faster on rate hikes despite slower economic growth. The freeze in Russia oil price caps and tightened sanctions on 32 Russian banks signal the EU's commitment to supporting Ukraine, but energy market uncertainty adds complexity to the central bank's September decision-making process.

What to Watch Next Week

• Eurozone Flash Manufacturing & Services PMI (early August): Forward-looking activity indices will reveal whether economic momentum holds amid rate-hike expectations and energy shocks
• Continued Earnings Season: TotalEnergies, LVMH, and other STOXX 50 members reporting Q2 results as market assesses earnings quality and guidance
• Oil and Geopolitical Developments: Further Middle East escalation or U.S.-Iran tensions could drive additional commodity volatility and inflation surprises