European stocks hold gains after ECB hike as investors weigh Trump s Iran threats

Market Analysis

European equities held modest gains on Thursday after the European Central Bank delivered a widely expected 25 basis-point increase to its key deposit rate, while markets also digested fresh geopolitical jitters after U.S. President Donald Trump warned of tougher action against Iran.

By 1330 GMT (0930 ET) the pan-European STOXX 600 was up about 0.7% after having closed at its weakest level in more than three weeks in the previous session. Londons FTSE 100 rose roughly 0.9% recovering from a dip that had taken it to its lowest since late March Germanys DAX was essentially flat, and Italys FTSE MIB gained about 1.3%, edging closer to record highs.

The ECB raised its deposit rate to 2.25%, its first hike in nearly three years, citing persistent inflation pressures and elevated energy costs amid geopolitical strains. The bank also revised its baseline inflation outlook to 3% for this year, moderating to 2.3% in 2027 and reaching the 2% target in 2028. With euro-area inflation still running above 3% while growth stalls, the central bank signalled that year-end rate cuts now look less likely a prospect that could weigh on equity valuations over time and keep pressure on economically sensitive sectors.

Market reaction to the decision was muted, reflecting how well the move had been telegraphed. Bargain hunters had already been buying oversold stocks ahead of the announcement as the buy the dip narrative remained intact, though strategists warned the ECB appears prepared to risk overtightening rather than let inflation expectations drift.

Stocks and Headlines

Geopolitical headlines took centre stage alongside the ECB move. President Trump said the U.S. would hit Iran very hard tonight and suggested Kharg Island could be targeted in the not too distant future. The comments followed a second day of air strikes exchanged between the U.S. and Iran and pushed U.S. futures lower, firmed the dollar and nudged oil prices up.

In corporate news, Hugo Boss jumped about 10% after Frasers Group launched a €2 billion takeover bid for the German fashion house; Frasers itself rose around 2.7%. Airline Wizz Air rallied roughly 4.5% after reporting annual profit ahead of estimates.

European technology names slid after Oracle outlined aggressive capital spending plans that prompted investors to reassess valuations across the sector. Software giant SAP and consulting firm Capgemini both fell about 5.2% as sector-wide re-pricing rippled through related names.

Commodity and currency moves were modest but notable. Brent crude ticked higher in response to renewed Middle East tensions, while the dollar firmed about 0.2%, reflecting safe-haven flows and the markets recalibration of interest-rate expectations.

Analysts noted that, although the ECBs rate move was anticipated, the policy shift and the fading chance of near-term easing raise a backdrop of higher-for-longer rates that could constrain earnings and slow the multiple investors are willing to pay for growth-exposed stocks.

For now, investors continue to balance central bank policy, corporate earnings and geopolitical risk all of which are shaping near-term market direction across Europe.