European equities fall following ECB rate hike to highest since 2025

European equities slipped on Thursday following a quarter-point interest rate hike by the European Central Bank to 2.50%, the highest level since April 2025. The pan-European STOXX 600 index slipped 0.7%, with Germany's DAX and France's CAC 40 both down by 0.7% and 0.5% respectively. The UK's FTSE 100 also declined 0.6%, with significant drops in retail and consumer discretionary sectors.

Despite support from commodity major stocks, retail giants faced sharp sell-offs. Eurozone borrowing costs reached their highest since April 2025, driven by a surge in Brent crude oil prices above $100 per barrel for the first time since July. Eurozone inflation accelerated to 3.3% in August, primarily due to a 14.3% increase in energy component prices.

ECB President Christine Lagarde and policymakers raised rates to curb inflationary pressures and prevent wage and service price increases. Swap markets now anticipate another rate hike before the end of the year.