European shares post first weekly loss in four as banks weigh

Synopsis

European shares declined, hitting a two-week low, pressured by British banks amid proposed tax changes. Natwest, Barclays, and Lloyds experienced significant drops. The STOXX 600 fell, marking its first weekly loss in four, influenced by U.S. Federal Reserve concerns and French political uncertainty. U.S. inflation data and Trump's attempts to influence the Fed also weighed on market sentiment.

European shares closed lower on Friday, hitting their lowest in over two weeks, weighed down by British banks, while investors assessed economic data in the U.S. and the euro zone.

Natwest dropped 4.8%, while Barclays and Lloyds shed 2.2% and 3.4%, respectively, as a think tank recommended Britain's government should tax banks on the billions of pounds they receive in interest from the Bank of England on the reserves they hold at the central bank.

This weighed on the broader banks index, down 0.9%. The index logged its sixth session of declines, its longest losing streak since October 2023.

The pan-European STOXX 600 closed 0.6% lower, registering its first weekly loss in four, with questions over the independence of the U.S. Federal Reserve and political uncertainty in France weighing on the index. However, it rose for the second consecutive month.

Fed independence has come into focus as President Donald Trump has stepped up his campaign to exert more influence over monetary policy, including his attempt to fire Governor Lisa Cook. Cook filed a lawsuit on Thursday saying Trump has no power to remove her from office.

Meanwhile, data showed the U.S. Personal Consumption Expenditures Price Index rose 2.6% in July on an annual basis, as estimated, suggesting a mild impact of tariffs on inflation.

However, it is not expected to prevent the Federal Reserve from cutting interest rates next month against the backdrop of softening labour market conditions.

"It remains the base case that they (Fed) will cut interest rates in September, but the higher inflation reading does put a seed of doubt into that," said Kiran Ganesh, multi-asset strategist at UBS Global Wealth Management.

FRENCH WOES

Major regional bourses also closed lower, with Germany's DAX down 0.6%.

German inflation accelerated more than expected in August while unemployment topped 3 million for the first time in a decade. French consumer prices rose slightly less than anticipated in August.

European technology stocks lost the most, tracking U.S. peers. ASML fell 2.7% and SAP fell 1.9%. Conversely, defence stocks were higher with the broader index up 0.4%.

France's CAC 40 has shed 3.3% this week, lagging regional peers, on concerns over a potential collapse of Prime Minister Francois Bayrou's government next month.

In September, the ECB is expected to keep rates on hold, mirroring its July meeting, after delivering eight rate cuts since mid-2024.

Renewable energy companies Orsted and Vestas Wind closed 3.3% and 3.1% lower respectively. The U.S. administration said it was cancelling $679 million in federal funding for 12 offshore wind projects.

Remy Cointreau fell 4.1%, even as the French spirits maker raised its full-year 2025/26 profit outlook.

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