Europe open: Stocks retreat before ECB decision as oil prices jump

(Sharecast News) - European stocks pulled back from a two-week high on Thursday morning as investors chose to take risk off the table amid surging oil prices and bond yields ahead of a European Central Bank policy meeting.

The Stoxx Europe 600 index was down 0.6% at 642.97 in early deals, with heavy losses in Paris (-1.0%) and Milan (-1.5%) weighing heavily on the benchmark. The index had risen 1.2% over the past two sessions to settle at 646.93 on Wednesday, its highest close since 6 July.

While the ECB is widely expected to keep interest rates unchanged when it announces its decision at 1315 BST - leaving the deposit facility rate at 2.25% after a 25-basis point rise in June - a 3.4% gain in Brent crude to $97.24 a barrel was weighing on sentiment, as the US and Iran continue to trade strikes and threats following the collapse of their ceasefire deal.

Markets were focusing on reports that Iranian-backed Houthi militants targeted two Saudi oil tankers in the Red Sea after Donald Trump threatened once again to bomb Iranian infrastructure.

Meanwhile, the euro rose against the dollar, hitting a one-week high of $1.142, while bond yields jumped, with the German 10-year Bund yield hitting 3.2%, its highest since mid-2011.

"Rising energy prices continue to reinforce expectations of more hawkish central banks. In the near term, a hawkish message from the ECB could encourage a further rise in the EURUSD," said Ipek Ozkardeskaya, senior analyst at Swissquote.

"Further down the road, however, if major central banks are forced to raise rates to fight inflation, both the euro and sterling could struggle to benefit, given Europe's much weaker growth outlook relative to the US, whose economy continues to be supported by AI investment and government spending. As a result, any advance in the major currency pairs could remain limited as long as the wars in the Middle East and Ukraine continue."

In company news, shares in Nestle fell sharply 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.

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.