Oil Spike and ECB Hike Drive Global Market Sell-Off

London stock markets ended Thursday in negative territory, driven by a sharp rise in global energy costs and hotter-than-expected inflation data from the United States. The FTSE 100 index declined by 61.14 points, or 0.6%, to close at 10,608.92, while the broader FTSE 250 fell 0.9% to 23,885.94. This downturn was mirrored across Europe, with the CAC 40 in Paris dropping 0.5% and the DAX 40 in Frankfurt losing 0.7%.

The primary catalyst for the sell-off was the surge in Brent crude oil prices, which reached $105.51 per barrel, up from $101.07 the previous day. According to GN stocks/shares-surge, this increase was fueled by escalating military tensions between the US and Iran, raising fears of supply disruptions. These energy costs, combined with US producer price data that exceeded forecasts, intensified concerns about persistent inflation and the trajectory of global interest rates.

ECB Raises Rates Amid Inflation Pressure

The European Central Bank hiked its three key interest rates by 25 basis points, a move that was widely anticipated by market participants. The deposit facility rate now stands at 2.50%, while the main refinancing operations rate is set at 2.65%. ECB President Christine Lagarde described the decision as a "no-brainer," noting that the conflict in the Middle East continues to generate inflationary pressure that is likely to keep price growth above the 2% target for an extended period.

Despite the rate hike, the ECB revised its economic outlook upward, citing greater-than-expected resilience in the eurozone economy. Staff projections now forecast headline inflation at 3.0% in 2026, 2.5% in 2027, and 2.1% in 2028. Concurrently, GDP growth forecasts were upgraded, with the economy now expected to expand by 0.9% in 2026 and 1.4% in 2027, reflecting a stronger performance than previously estimated in June.

Sector Performance Highlights Divergent Trends

Individual company results varied significantly across the FTSE 100. Associated British Foods suffered the largest loss in the index, dropping 7.9% after weaker-than-expected sales at its Primark brand overshadowed the announcement of a home delivery service launch. The company’s grocery division was also negatively impacted by the summer heatwave in the UK and Europe, which reduced consumer demand for certain products.

In contrast, tobacco manufacturers posted gains, with Imperial Brands rising 1.8% and British American Tobacco up 1.5%, leading the index to the close. However, mining stocks faced headwinds as industrial metal prices, particularly copper, fell sharply. This decline dragged down major London-listed miners, including Antofagasta, which lost 5.7%, Anglo American, down 4.9%, and Glencore, which shed 4.1%.

Bond Yields Spike on Rate Outlook

Global bond markets reacted to the inflation data with a surge in yields, as investors reassess the future path of central bank monetary policy. The yield on the US 10-year Treasury widened to 4.92% from 4.81%, while the 30-year Treasury yield rose to 5.34% from 5.26%. This move was driven by US producer prices rising 5.4% year-on-year in August, accelerating from 4.8% in July and exceeding the 5.3% forecast.