Europe close: Stocks sink on surging oil prices, ECB rate hike bets

(Sharecast News) - A sharp rise in oil prices and hawkish comments from the European Central Bank sent European stock markets to their lowest levels in two weeks on Thursday, as inflationary concerns reignited.

The benchmark Stoxx 600 index was down 1.2% by the close of play, with the selling pressure intensifying in the afternoon following a woeful start on Wall Street as earnings from heavyweights Tesla and Alphabet disappointed.

Dampening sentiment across global equity markets was another surge in the price of oil, with Brent crude up 7.3% at $100.91 a barrel, hitting highs not seen since mid-May,

Oil rose for the fifth straight session after Iranian-backed Houthi militants targeted two Saudi oil tankers in the Red Sea and Donald Trump threatened once again to bomb Iranian infrastructure.

Meanwhile, the ECB left its key interest rate unchanged, as expected, keeping the deposit facility rate at 2.25%, after raising rates by 25 basis points in June for the first time in a year.

In a statement accompanying its decision, the ECB Governing Council acknowledged that the inflationary impact of the Middle East conflict has yet to fully play out, and said they were "ready to adjust all of its instruments within its mandate" to stabilise inflation at the target 2% level.

Government bond yields climbed across the globe, with Germany's 10-year Bund yield up 3.8 basis points at a 2011 high of 3.24%. Yields also climbed across the US, Italy, Spain, UK and Japan.

Bas van Geffen, senior macro strategy at Rabobank, said in an email that a September rate hike remains Rabobank's "base case" projection, with the ECB hinting at such a move today.

"We still believe that 2.50% marks the end of this hiking cycle, but developments in the Middle East increase the likelihood that the ECB is forced to implement additional tightening. If they do, that also raises the odds policymakers will have to reverse course next year, amidst weaker economic activity," he said.

Nestle, Unicredit and BNP Paribas slump

Shares in Nestle fell 8% in Zurich after the food and drink giant sold half of its water division to PE firm Platinum Equity for $3.4bn. The Swiss group announced the creation of a joint venture called Peranel, while reporting first-half results which showed a 31.4% slump in net profits.

Banking stocks were also providing a drag after Italian lender UniCredit underwhelmed with record profits in the second quarter, and BNP Paribas disappointed with a 33% surge in second-quarter profits.

Segro was rising strongly in London after announcing that it would be minded to recommend a �14bn final takeover approach by US logistics giant Prologis should a firm offer be made.

Moncler was sharply lower after the Italian luxury brand reported ongoing weakness in the European market, which held back constant-currency revenue growth to just 5%.

Meanwhile, shares in STMicroelectronics tumbled 18% after the chipmaker missed consensus estimates with its third-quarter sales, with concerns continuing to rise over the AI spending boom.