Europe: Stocks gain, but inflation worries drive weekly decline
Published Sat, Aug 22, 2026 · 08:31 AM
[BENGALURU] European shares advanced on Friday (Aug 21), as investors focused on signs of economic resilience, though the benchmark index ended the week lower, with elevated oil prices and Treasury yields keeping inflation concerns alive.
The pan-European Stoxx 600 closed 0.6 per cent higher at 654.18 points, still extending losses for a second straight week.
A sharp jump in US long-term bond yields earlier this week had unsettled global investors and dented risk appetite, before the US Treasury announced measures to boost liquidity support, which many considered as a temporary fix.
However, a robust earnings season has supported risk appetite in Europe, with the region’s economy showing signs of resilience despite the Middle East conflict due to its limited exposure to artificial intelligence trade and a clearer monetary policy outlook.
Eurozone business activity is growing at its fastest pace this year thanks to new orders in manufacturing, and renewed export growth, data showed on Friday. S&P Global’s Flash Euro zone Composite PMI Output Index reached its highest since November this month.
Still, investors remain wary of reading too much into recent data, given uncertainty over inflation.
“Europe continues to offer a cautious recovery signal. Industrial improvement without a broad demand surge is close to a Goldilocks outcome for now – enough growth to improve confidence, but not enough to remove the ECB’s need for vigilance,” said Geoff Yu, senior EMEA market strategist at BNY.
Among sectors, luxury stocks gained 1.4 per cent, rebounding from sharp decline in the previous session, while basic resources led sectoral gains, rising 2.5 per cent as a softer dollar lifted gold prices.
European equities saw a US$2.44 billion inflow in the week to Aug 12, the largest since the week ending Feb 25, just before the US-Iran war broke out, LSEG/Lipper data showed.
The retailers advanced 1 per cent as JD Sports climbed 5.6 per cent, recovering from a 14 per cent drop on Thursday after the British sportswear retailer lowered its annual profit forecast.
Meanwhile, money markets are bracing for an increasingly hawkish European Central Bank, with the stalemate between US and Iran in the Middle East complicating outlook for inflation.
US Treasury Secretary Scott Bessent expanded on US President Donald Trump’s pledge of economic warfare against Iran, saying the US would impose “the toughest sanctions in history” on the country.
The threats further reduced optimism over a deal to fully reopen the Strait of Hormuz, lifting Brent crude by 0.5 per cent.
“Right now, you see a little bit of that uncertainty priced into oil and sentiment, but it’s not quite taking hold of the narrative yet because markets are not fully buying the story that the US will eventually go through with these sanctions,” said Daniela Hathorn, a senior market analyst at Capital.com.
Energy was one of the few sectors to decline, along with utilities and defence.
Among individual movers, Nibe Industrier topped the benchmark, up 8.8 per cent after the Swedish heat pump maker reported second-quarter results.
Straumann slipped 3.3 per cent after Deutsche Bank downgraded the Swiss dental implants maker to “hold” from “buy”, citing rising risks and CEO transition. REUTERS
