Oil rethink drags UK shares as crude prices slip
European stock markets advanced on Thursday as investors absorbed gains from Asia and assessed signals from China that policymakers may deepen fiscal support to bolster the economy. Chinese equities staged a robust rally, extending the momentum built earlier in the week after the People’s Bank of China unleashed supportive measures, often described as a “bazooka” in policy circles. The property sector benefited as the politburo signaled intensified efforts to shore up real estate, a move that fed through to sentiment across Chinese and Hong Kong markets. Hong Kong shares climbed about 4% to reach a one-year high, while Chinese stocks were roughly 10% higher on the week, helped by fresh policy optimism and the potential for more stimulus.
In European trading, Paris led the charge, buoyed by a strong surge in luxury stocks following the China-related news and the perceived wealth effect that tends to accompany optimistic demand signals from the world’s second-largest economy. Luxury names like Kering and LVMH rose about 6%, providing a meaningful lift to the CAC index, which advanced around 1.5% in early trading. The rebound in luxury has been pronounced this year after a period of sharp declines, leaving the sector particularly ripe for a rebound if new catalysts emerge from the luxury goods demand side or from Chinese consumer confidence. The DAX followed with gains exceeding 1%, while the FTSE 100 added roughly 0.5%. Miners were about 4% higher, though their contribution to the index’s performance was tempered by the sector’s smaller overall weight compared with oil majors. In London, the more China-sensitive stocks also traded higher: Prudential led gains with a roughly 5% rise, and Diageo advanced about 4% ahead of its annual general meeting, with Burberry also catching relief on the news cycle. This broad exposure to China and policy rhetoric helped lift risk assets across the European landscape, even as more structured risk factors persisted in other segments of the market.
Global fixed income and macro headlines also contributed to the day’s tone. Treasury yields ticked up after renewed supply of fresh five-year notes, with the two-year yield briefly testing higher levels after previously touching a two-year low. The 2-year yield managed to rebound to around 3.58%, marking a shift in short-end expectations amid a slate of important speeches and data due later in the session. Market watchers anticipated remarks from the Fed chair, Jerome Powell, and the European Central Bank president, Christine Lagarde, who were both scheduled to speak, reinforcing a broader narrative about monetary policy normalization paths in major economies. In addition to these speeches, the market was watching the release of the U.S. final gross domestic product figure for the quarter (forecast around 3%), weekly unemployment claims (around 224,000) and core durable goods orders, which were expected to post a modest gain on a month-on-month basis. These data points were seen as potential guides to the trajectory of inflation and growth that could influence central bank policy and, by extension, market sentiment.
Among domestic developments, the United Kingdom drew attention to the OECD’s assessment that Britain could see a substantial increase in capital spending, a finding that sparked renewed interest in gilt markets and the pound. The currency traded with a degree of volatility near the 1.34-dollar mark, having oscillated around that level in early trading after a run higher the day before. The oil market was in focus as well, with crude prices pressured by reports that Saudi Arabia might abandon its $100 per barrel price target in favor of a production ramp to regain market share. There were also indications of revived Libyan production, which added to the supply-side narrative and contributed to a softer near-term oil outlook. OPEC+ decided to delay an unwinding of its current production restraint, signaling that the group would maintain discipline through December, with Saudi leadership signaling a preference to avoid ceding further market share during this period. The broader picture suggested that non-OPEC+ oil production—particularly from Brazil, Guyana, Canada, and the United States—could rise in the coming year, and there was a growing expectation among producers that lower-for-longer price dynamics would persist. This confluence of supply-side developments and geopolitical considerations helped shape a nuanced energy backdrop that fed into equity market moves.
Geopolitically, tensions in the Middle East appeared to ease somewhat as reports circulated of talks aimed at easing conflict in Lebanon, with Israeli Prime Minister Netanyahu ordering a de-escalation of strikes in that border region following U.S.-led outreach seeking a ceasefire window of approximately 21 days. While not a direct driver of day-to-day market action, this easing of tensions contributed to a calmer general risk environment, allowing investors to reprice risk assets with greater confidence than in moments of heightened geopolitical stress.
Turning to the European macro picture, the ECB’s policy outlook drew significant attention as markets priced in the possibility of a gradual approach to rate reductions, or even a potential shift away from the idea of back-to-back, predefined cuts. The central bank has consistently highlighted the risk-to-growth balance and the downward creep in inflation, especially in wage dynamics, as a critical factor for policy direction. A notable development in the ECB’s discourse was a bulletin that underscored the easing of wage growth pressures. Specifically, negotiated wage growth slowed to 3.55% in the second quarter from 4.74% in the previous quarter, the lowest level recorded since late 2022. This moderation is viewed as a potential tailwind for inflation dynamics and for the path of policy normalization, given wage growth is a key input into the ECB’s assessment of inflationary pressures and the potential persistence of labor-market tightness. Traders and analysts highlighted how wage data, which the ECB has long considered a central piece of the policy puzzle, could influence decisions regarding the timing and scale of future rate adjustments. The commentary also reinforced the importance of the negotiated wage data in shaping the policy outlook, as it provides a window into the broader dynamics of domestic demand, consumption, and potential inflationary spillovers.
As the day progressed, several corporate updates hit the tape across major markets, pointing to ongoing reassessment of earnings, guidance, and strategic positioning amid the post-pandemic macro landscape. Notably, updates from Abrdn Property Income Trust (API), Shell (SHEL), Wizz Air (WIZZ), Videndum (VID), Diageo (DGE), AB Dynamics (ABDP), and Mitchells & Butlers (MAB) surfaced, reflecting a broad spectrum of company-specific catalysts that may influence investor sentiment in the near term. While the precise details of each update were not laid out in the briefing, the collective tone suggested continued attention on real asset portfolios, energy sector exposure, airline capacity and profitability, media and entertainment equipment suppliers, luxury beverage brands, automotive testing and simulation, and hospitality operators. This constellation of corporate signals underscored a market environment where sector rotation and stock-specific catalysts were likely to drive short- to medium-term performance, even within a broader macro framework dominated by policy expectations and supply-demand dynamics in energy and commodities.
Against this backdrop, investors turned their attention to several proximate catalysts that could shape the immediate trajectory of markets. The slate of speeches by Powell and Lagarde, alongside the U.S. GDP release, unemployment data, and durable goods orders, promised to deliver fresh insights into the health of the global economy and the resilience of consumer demand. Additionally, the energy complex and the policy stance of OPEC+ and Saudi Arabia appeared to frame medium-term price expectations, which in turn affect corporate earnings, particularly for energy-intensive sectors such as mining and manufacturing. The interaction between policy signals, energy supply dynamics, and corporate earnings highlights created a mosaic of inputs that investors adroitly weighed when projecting risk and return. In this context, the European session’s gains reflected a broad-based risk-on environment, underpinned by positive sentiment about China’s stimulus trajectory, a more favorable macro backdrop in the euro area, and a sense that the path of global inflation may continue to ease gradually. The market appeared to be recalibrating around a scenario in which growth remains supported by policy levers while inflationary pressures continue to recede, allowing central banks to adopt measured loosening in policy posture without sacrificing price stability.
Looking ahead, market participants were keen to see how the day’s events would translate into longer-term momentum. The potential for continued Chinese policy support could sustain a more constructive global growth narrative, especially if property-market stabilization is confirmed and domestic demand strengthens accordingly. In Europe, the performance of luxury equities, as well as the performance of energy and materials sectors exposed to China, was likely to be a barometer for the broader risk-on appetite. The domestic political and policy signals from the UK, and the evolving ECB stance, would be watched closely, as any shift in fiscal or monetary stance could alter capital flows across equities, fixed income, and currencies. Traders would also monitor oil-market dynamics, supply constraints, and geopolitical developments as energy prices continue to influence corporate profitability and consumer spending. The confluence of these factors suggested that the market’s trajectory would remain sensitive to policy announcements, macro data prints, and the evolving narrative around growth prospects in China and the wider global economy.
Conclusion
In summary, European equities posted gains as Asia advanced and Chinese policymakers signaled further fiscal support to stimulate growth. The rally was broad-based across sectors with a notable tilt toward luxury stocks in Paris, supported by China-driven optimism, and a more constructive tone for risk assets in other major indices. The day’s action reflected a confluence of macro signals, policy developments, and sector-specific catalysts, including renewed appetite for Chinese exposure among European investors, the influence of energy and materials dynamics on mining and industrials, and the shifting expectations around ECB policy in the context of easing wage growth and inflation. While the near-term market path remains uncertain and contingent on the pace and scale of policy actions, the current mood suggested that investors were positioned to ride a potential upcycle in global growth and consumer demand, anchored by the comfort provided by improving macro data, the prospect of further policy stimulus, and a favorable balance between inflation and growth in key economies.
This narrative also highlighted the interconnectedness of global markets, as policy decisions in one region reverberate through equities, bonds, and currencies worldwide. The emphasis on China’s stimulus measures, the resilience of luxury demand, and the evolving policy stance of Europe’s central bank collectively pointed toward a more supportive environment for equities, particularly those with strong exposure to China and other growth markets. As the week unfolds, investors will be watching for further policy announcements, the trajectory of commodity prices, and upcoming data that could confirm or challenge the current thesis. The balance between growth prospects and inflation will likely continue to guide market expectations, with a particular focus on how wage dynamics influence the ECB’s policy path and, by extension, the broader risk framework for global equities.