European equities closed higher on Friday, recovering from a weak prior session as investors reassessed the likelihood of a U.S. Federal Reserve rate hike in September. The Euro Stoxx 50, the region’s blue-chip benchmark, climbed 0.95% to 6,485.67 points, extending its weekly gain to 0.4%. The London FTSE 100 rose 0.29% to 10,824.26, while Switzerland’s SMI gained 0.11% to 14,399.77.
Comments from Federal Reserve Governor Kevin Warsh at the Kansas City Fed’s Jackson Hole symposium reinforced expectations for tighter monetary policy. Warsh emphasized that the central bank must be convinced core inflation is sustainably moving toward target before easing its stance. «We must be confident that core inflation is clearly and durably moving toward our objective. Otherwise, we have more work to do,» he said. Recent data suggest a slight cooling in activity, but Warsh indicated this does not alter the underlying inflation trajectory.
Higher interest rates typically favor fixed-income assets over equities, particularly weighing on rate-sensitive sectors such as technology due to heavy capital expenditures in areas like artificial intelligence. The shift in tone from Warsh follows weeks of market skepticism about the Fed’s willingness to raise rates, analysts noted. Elmar Völker, senior economist at Landesbank Baden-Württemberg, described Warsh’s remarks as an attempt to address doubts about his hawkish stance ahead of the September 17-18 Federal Open Market Committee meeting. «The U.S. August inflation data, due days before the decision, will likely be decisive,» Völker said. «If core inflation does not soften further, a rate hike is seriously in play. The outcome could be on a knife edge.»
Market pricing reflected the growing probability of a 25-basis-point increase. The CME FedWatch Tool showed the likelihood of a hike rising to a majority, upending prior expectations that favored a hold. Just before Warsh’s remarks, two-thirds of traders had anticipated no change in policy.
Sector performance highlighted broad-based gains. Auto stocks led advances after a bullish outlook from Citigroup, while cyclical sectors such as chemicals, utilities and banks also benefited. Banks were supported by expectations of wider net interest margins in a higher-rate environment. Construction firm Strabag surged nearly 16% after reporting strong half-year results, a record order backlog and an upgraded margin target. Michael Marschallinger of Erste Group Bank called the figures «strong,» citing accelerating infrastructure activity and an improved outlook as catalysts for further upside. Minor losses were confined to healthcare and real estate, the latter pressured by rising financing costs for development projects.
