European equity indices moved into negative territory in early Thursday trading, pushed lower by a sharp spike in oil and the prospect of imminent central bank interest-rate decisions.
At 03:00 ET (07:00 GMT), the pan-European Stoxx 600 was down 0.5%. Germany's Dax had slipped 1.0%, France's CAC 40 fell 1.3%, and the U.K.'s FTSE 100 was lower by 0.1%.
Oil surge and geopolitical reports
Brent crude futures rose above $125 a barrel in overnight trading, marking the highest intraday level since the start of the Iran war. The jump followed a report that President Donald Trump was scheduled to receive a briefing on new potential military strikes on Iran. That action was portrayed in the report as a potential lever to break a stalemate with Tehran over its nuclear ambitions.
On social media, President Trump wrote: "Iran can't get their act together. They don't know how to sign a nonnuclear deal. They better get smart soon!"
Deutsche Bank analysts said the combination of these threats and the continued closure of the Strait of Hormuz has "fed growing fears about an extended stagflationary shock" driven by soaring energy costs. They added that such concerns had already contributed to losses across Asian equity markets and that the weakness had spilled over into European shares and U.S. stock futures.
Central banks take centre stage
With renewed conflict risks in the Middle East and elevated oil prices weighing on the outlook, two major European central banks are set to announce policy decisions later in the day: the European Central Bank and the Bank of England.
The ECB is widely expected to hold its deposit rate at 2%. However, Deutsche Bank flagged that, given Europe's vulnerability to rising crude prices, markets are pricing in a likely increase in borrowing costs at the ECB's next meeting in June. As the analysts put it, "[S]o the question today is whether the ECB validates that view."
Policymakers at the Bank of England are also anticipated to keep rates unchanged at 3.75%. Commentators expect the BOE to emphasise the dual risks of slowing economic growth and rising inflation in its outlook.
U.S. Fed decision and leadership note
Separately, the Federal Reserve left rates unchanged on Wednesday, as expected. The decision was described internally as the most contentious since the early 1990s, highlighting growing divisions among officials. Fed Chair Jerome Powell also stated he would remain on the central bank's board after his chairmanship ends in May, a significant variance from past practice that could complicate the transition to Kevin Warsh, President Trump's nominee to replace Powell as chair.
Together, elevated energy prices, geopolitical tensions and central bank policy signals are key drivers for markets as investors weigh near-term risks to growth and inflation. The immediate market response was a broad pullback in European equities alongside higher oil prices and continuing volatility in futures markets.