European stocks mixed; inflation, growth data in spotlight

European markets closed mixed but capped a positive week, as the UK economy showed signs of stagnation with flat July GDP and German inflation rose to 2.1%, contrasting with the ECB's decision to hold rates while the Fed is expected to cut. Concurrently, Banco Sabadell's board unanimously rejected BBVA's hostile takeover bid, citing undervaluation and regulatory hurdles, setting up a prolonged M&A standoff. Crude oil prices experienced mixed movements on Friday, influenced by rising US inventories and IEA forecasts for increased OPEC+ supply.

Analysis

European markets ended the week on a mixed note, digesting divergent economic data and central bank signals. The U.K. economy is exhibiting signs of stagnation, with July GDP growth coming in flat after expanding 0.7% in Q1 and 0.3% in Q2 of 2025, suggesting a notable slowdown. In the Eurozone, while German inflation accelerated to 2.1% in August, the broader inflation outlook is considered under control, supporting the European Central Bank's decision to hold interest rates and maintain an upbeat forecast. This creates a policy divergence with the U.S. Federal Reserve, which is anticipated to cut rates by 25 basis points. In corporate news, a significant M&A battle is brewing in Spain's banking sector, as Banco de Sabadell's board unanimously rejected BBVA's hostile takeover bid, citing undervaluation and regulatory hurdles. This rejection, reflected in the negative sentiment scores for both BBVA (-0.6) and Sabadell (-0.2), sets the stage for a prolonged and uncertain standoff. Meanwhile, the energy market is contending with opposing forces; crude prices are volatile as rising U.S. inventories (up 3.9 million barrels) and IEA forecasts of higher OPEC+ supply weigh against geopolitical risks that supported prices earlier in the week.

Key Decisions for Investors

• Investors in BBVA and Banco de Sabadell should brace for heightened volatility, as Sabadell's rejection of the hostile bid introduces significant deal uncertainty and the risk of a costly, prolonged M&A battle.
• The diverging monetary policy between a hawkish ECB and an easing Federal Reserve may present opportunities in FX markets, potentially favoring Euro strength against the U.S. Dollar in the near term.
• The flat U.K. GDP growth for July is a key red flag for a domestic economic slowdown, warranting a cautious stance on U.K.-centric equities and sterling-denominated assets.
• Given the conflicting drivers of rising U.S. crude inventories and higher OPEC+ supply forecasts, energy investors should monitor for a clear catalyst to break the current price tension, as oil markets appear fragile and susceptible to sharp movements.