European markets on the 5th saw major stock indices extend gains, but trading lacked clear direction amid mixed sentiment surrounding the Middle East situation. The STOXX Europe 600 Index set a record closing high for a second consecutive day, though the advance was limited. While hopes for peace talks between the U.S. and Iran grew, individual corporate earnings painted a mixed picture.
The STOXX Europe 600 Index closed up 0.04% at 657.1, barely holding in positive territory. In London, the FTSE 100 edged up 8.92 points to 10,888.30. The mid-cap FTSE 250 Index rose 0.71%, with some domestically-focused stocks attracting buyers. Germany’s DAX fell 0.29%, while France’s CAC 40 was up 0.03%, reflecting a mixed performance.
The resources sector drew market attention. Against a backdrop of rising gold and copper prices, the STOXX Europe 600 Basic Resources Index surged 2.29%. Mining giant Glencore jumped 4.1%, buoyed by first-half 2026 profit levels that beat market expectations. Copper major Antofagasta rose 3.0%, and Rio Tinto gained 2.7%, lifting the entire sector.
Resources were not the only stocks bought on earnings optimism. British retailer Next soared 5.7% after raising its full-year profit guidance for the third time this year. Swiss generics pharmaceutical giant Sandoz surged 6.0% after reporting higher revenue for the April-June 2026 quarter. Dutch brewing major Heineken also rose 2.2% after its interim profit exceeded market forecasts.
However, Denmark’s Novo Nordisk, one of Europe’s largest companies by market capitalization, tumbled 4.3%. Despite raising its full-year 2026 guidance, sales of the oral version of its obesity drug “Wegovy” fell short of market expectations, triggering widespread disappointment selling. Reuters reported that British pharmaceutical giant AstraZeneca is not currently in concrete talks regarding a merger with U.S. peer Bristol-Myers Squibb. AstraZeneca shares rose 2.5%.
The financial sector saw a sharp divergence. Banking giant HSBC fell 4.7%, and insurance major Prudential plunged 6.4%. Reports that Chinese authorities may tax investment gains on offshore insurance products sparked selling in both companies, which have significant exposure to Asian businesses.
In bond markets, demand for sovereign debt as a safe-haven asset increased on hopes for progress in U.S.-Iran peace talks, pushing yields lower. U.S. President Trump said on the 4th that he had engaged in “all-day negotiations” with Iran and that “very good discussions” were underway. The remarks fueled optimism for an end to the conflict that has disrupted energy supplies from the Middle East, sending Brent crude futures to a three-week low.
The benchmark German 10-year bond yield fell 1 basis point to 3.104%. During the session, it briefly touched 3.089%, its lowest level since July 15. The German 2-year yield was nearly flat at 2.718%, though it dipped as low as 2.695% intraday.
The decline in energy prices eased concerns about accelerating inflation and slowing economic growth, pushing back expectations for additional rate hikes by the European Central Bank. The pace of tightening priced in by futures markets for the year narrowed to roughly 35 basis points in total, down from around 44 basis points as of July 31 last week. This implies one 25-basis-point hike and about a 40% probability of a second hike.
In foreign exchange markets, the euro edged up to $1.154 against the dollar. The dollar traded at 157.6 yen. Markets remained jittery amid lingering effects of the coordinated yen-buying intervention conducted by Japan and the U.S. the previous week. Comments by U.S. Treasury Secretary Bessent, who said he is “confident that Governor Ueda will do what is best for Japan’s economy,” were interpreted by markets as a signal tolerating additional rate hikes by the Bank of Japan.
Spot gold rose 2.7% to $4,185 per ounce, with lower yields enhancing the appeal of the non-interest-bearing metal.
This week, with U.S. monthly jobs data due at the end of the week and inflation indicators next week, investor attention is focused on the direction of monetary policy. James Rossiter, head of global economics at TD Securities, noted that if the U.S. Federal Reserve shifts from holding rates steady to a tightening cycle, “markets will react violently.” In futures markets, the probability of a Fed rate hike in September fell to 57% from 67%.
On Middle East peace, Qatar indicated progress in mediation efforts to end the war between the U.S. and Iran, though details remain unclear. John Oh, energy economist at CBA, analyzed based on vessel tracking data that traffic through the Strait of Hormuz may have reached 40% to 45% of pre-war levels last week. He suggested that if traffic recovers to 50% to 60% of pre-war levels, global oil markets could tip into oversupply.