European stock markets traded modestly higher on Friday, supported by gains in healthcare stocks, even as rising oil prices and renewed geopolitical tensions kept investor sentiment cautious. The pan-European STOXX 600 index rose 0.2% to 659.59 points in early trading and remained on track to post its fourth consecutive weekly gain. According to Reuters, investor sentiment was buoyed by hopes that diplomatic efforts in the Middle East could reduce geopolitical tensions and improve stability in global markets. However, market optimism that had pushed European equities to record highs earlier in the week eased as oil prices climbed amid fresh concerns over shipping through the Strait of Hormuz.
European blue-chip companies are gearing up for their most promising quarterly earnings growth in the last three years, with the energy sector and basic materials industries making significant strides. The STOXX 600 index anticipates a remarkable earnings rise of 22.4% for the second quarter, marking the strongest pace since the third quarter of 2022. According to the latest LSEG I/B/E/S data, companies on the benchmark STOXX 600 index are now expected to deliver earnings growth of 22.4% for the second quarter, with the estimate based on reported results from 236 companies and analyst forecasts for firms yet to announce their earnings. Energy is expected to lead earnings growth with profits projected to surge 135.8% from a year earlier, while basic materials, which include chemical companies, steelmakers and mining firms, are forecast to post earnings growth of 57.6%, making them the second-best performing sector during the reporting period.
Sectoral performance across Europe was mixed, with healthcare stocks emerging as the strongest performers, climbing 1.3% led by Danish biotechnology company Genmab, whose shares surged 7.2% after the cancer drugmaker reported stronger first-half revenue and raised its full-year financial guidance. In contrast, insurance stocks weighed on the broader market, with the sector falling 0.6%. German reinsurer Munich Re declined 3.7% despite reporting a 6% increase in second-quarter net profit, outperforming market expectations that had pointed to a decline, as investors appeared to focus on valuation concerns and profit-taking following the earnings release.
The rise in crude prices has renewed concerns over inflation, prompting investors to reassess expectations for global monetary policy ahead of the closely watched U.S. non-farm payrolls report due later in the day. Brent crude futures extended gains to trade around $83.29 per barrel after reports that Iran, in coordination with Oman, proposed new rules that could restrict vessels considered hostile from using the strategically important waterway, raising fears of potential disruptions to global energy supplies. The rise in crude prices has renewed concerns over inflation, prompting investors to reassess expectations for global monetary policy ahead of the closely watched U.S. non-farm payrolls report.
Investors are expected to remain cautious through the session as attention shifts to the U.S. employment data, which could significantly influence expectations for the Federal Reserve's policy path in the coming months. According to Reuters, economists expect U.S. job growth to have accelerated in July, a sign that the labour market remains resilient. A stronger-than-expected employment report could reinforce expectations that the U.S. Federal Reserve will keep interest rates higher for longer as it continues to prioritise inflation control. Alongside the jobs report, developments in the Middle East and movements in crude oil prices are likely to remain key drivers of market sentiment, with higher energy costs posing potential risks to inflation and corporate profitability.
