European equities retreated on Thursday after the European Central Bank raised interest rates to their highest level since April 2025, compounding pressure from energy costs that have pushed Brent crude above $100 a barrel.
The ECB's Governing Council increased the benchmark deposit facility rate by 25 basis points to 2.50%, a move that reflected policymakers' assessment of persistent inflationary pressures across the eurozone. Eurozone headline inflation accelerated to 3.3% in August, driven largely by energy costs, which surged 14.3% year-on-year. Energy prices have climbed nearly 40% since a U.S.-Iran ceasefire broke down in early July, and Brent crude broke above the $100 mark for the first time since July.
Swap markets are now pricing in the possibility of another rate increase before year-end.
The pan-European STOXX 600 index slipped 0.7%. Germany's DAX posted an identical 0.7% decline, France's CAC 40 lost 0.5%, and the UK's FTSE 100 shed 0.6%. The broader selloff came as investors digested the central bank's decision ahead of a packed week of U.S. economic data.
On the corporate front, Associated British Foods fell more than 10% after its budget fashion subsidiary Primark reported lackluster sales. Swedish property platform Hemnet sank 15% after its board halted a share buyback program worth up to 600 million Swedish crowns. Belgian holding group D'Ieteren rose 5% following the appointment of a new chief executive.
Looking ahead, traders are positioning for the Federal Reserve's policy meeting on Sept. 15–16 and a U.S. Consumer Price Index report due Friday, both of which could influence global market sentiment and the trajectory of monetary policy expectations across developed economies.
