European stocks on course to cap worst week since July on oil, bond pressure

European equities experienced an end to a turbulent week, with the majority of stocks posting a decline as geopolitical tensions and rising oil prices weighed on investor sentiment. The Stoxx Europe 600 Index dropped 0.6% over the week, closing up 0.6% on Friday as bargain hunters moved in to stabilize the market. Regional performance followed a similar pattern; Germany's DAX rose 0.5%, London's FTSE 100 gained 0.3%, while France's CAC 40 added 0.4%.

This marked a significant shift for continental markets, which had been on a high in August due to strong second-quarter earnings from banks, luxury goods, and energy sectors, propelling benchmarks to record highs. The main driver behind Friday's defensive sentiment was President Donald Trump's pledge to impose the toughest sanctions on Iran and target any nation aiding the regime.

This threat extinguished hopes for a quick diplomatic resolution that would reopen the Strait of Hormuz, leading to a surge in Brent crude futures to a one-month high of $93.12 per barrel. Energy desks are now pricing in a prolonged disruption to oil and LNG supplies due to the depressed tanker traffic in the Persian Gulf. Analysts noted that while the Treasury's intervention provides temporary relief, it does not address the underlying factors supporting higher term premia.

Nibe Industrier AB surged 7.4% after reporting better-than-expected Q2 operating profits, fueled by strong demand for its Climate Solutions division. Meanwhile, Banca Generali SpA declined 2.6% following Monte dei Paschi di Siena's simultaneous takeover bids for rival Banco BPM, reshaping Italy's banking sector.