European stocks snap two-week slide as Fed resolve

European equities experienced a slight pullback on Friday, steadying after a sharp two-week increase, as investors found solace in the Federal Reserve's determination to combat inflation. The Stoxx Europe 600 Index slipped 0.44%, trailing a one-week high achieved on Thursday. Germany's DAX and France's CAC 40 declined by 0.7%, while London's FTSE 100 dropped 0.6%. Nestle saw a 1.3% reduction following Russia's takeover of the Swiss food giant's local assets.

Nevertheless, the pan-European benchmark was poised for a 0.54% weekly gain, marking a turnaround from a disastrous start to the week, when the main index plummeted to three-month lows on Tuesday. Initial trepidation towards the Fed's hawkish message gradually transformed into a more positive attitude towards risk by the end of the week, buoyed by some relief in oil prices and the lack of a fresh surge in long-term yields, according to Daniela Hathorn, senior market analyst at Capital.com.

The week's events unfolded as a textbook macro rollercoaster for European trading desks, characterized by extreme commodity volatility and a string of central bank policy announcements. Continental equities plummeted on Tuesday, with the Stoxx 600 reaching its lowest point since June. This downward spiral was sparked by a targeted attack on Saudi Arabia's East-West pipeline - which threatened up to 4% of global oil supplies - and recurring Houthi strikes in the Red Sea, driving Brent crude to over $113 a barrel and pushing the U.S. 10-year Treasury yield above 5% for the first time since 2007.

A dramatic shift in sentiment occurred on Thursday following the Federal Reserve's unanimous decision to increase interest rates by 25 basis points to 3.75% - 4%, its first hike since mid-2023. Chair Kevin Warsh's firm stance reassured allocators that the central bank remained committed to curbing energy-driven inflation, regardless of political pressure from the Trump administration.

This helped the Stoxx 600 achieve its best single-session performance in over two months. The Bank of England held its benchmark rate steady at 3.75% in a 6-3 vote, warning that higher global energy input costs could mandate a rate hike to 4.00% at their November meeting if Persian Gulf transit issues persist.