European shares reverse gains as U.S. indices drop

European shares reversed gains on Thursday, following a tumble in U.S. indices. 

European stocks had earlier built on a powerful relief rally to trade near their highest levels since August, as retreating energy costs and resilient earnings across the artificial intelligence supply chain overshadowed looming monetary tightening in London and escalating street protests in Paris.

However, the pan-European STOXX 600 reversed course, closing down 0.4%. 

"The energy shock is manageable at its current scale (prompt tightening helping) and we’re still not convinced demand conditions are robust enough to allow firms to pass increased costs on anyway," analysts at Lloyd’s Bank said. 

Heavyweight ArcelorMittal gained 5% after the world’s second-largest steel maker beat core profit forecasts. Orsted and Nordex over 4% each after reporting results, while Air ‌France-KLM gained 11% after beating third-quarter operating profit forecasts. French electrical equipment maker Legrand jumped 3.4% after the group raised its full-year 2026 sales growth target for the second time this year. Management highlighted insatiable demand for datacenter power distribution and cable management systems, offering concrete evidence to trading desks that the physical infrastructure underpinning AI continues to generate cash-generative top-line growth. About 50% of STOXX 600 companies have reported so far in this current earnings season.  The buying also followed an overwhelming victory by Democrats in the U.S. midterm elections, which reduced the threat of trade tariffs, prompted a slide in crude prices, and unleashed risk appetite across bourses. France’s CAC 40 closed 0.3% higher while London’s FTSE 100 dropped 0.4%. Spain’s IBEX 35 rose 0.4%, while Italy’s FTSE MIB fell 1%. 
Germany’s DAX lost 0.4%, impacted by a 4% drop in Arm Holdings, which forecast third-quarter revenue marginally ahead of Wall Street expectations. Meanwhile, Rheinmetall dropped 16% after cutting its 2026 ‌sales forecast for the second time. 

BoE hikes for first rate increase in three years

The Bank of England delivered a 25-basis-point interest-rate increase, taking Bank Rate to 4.00% - its first rate hike in three years - a widely expected move.
Driven by mounting imported inflation pressures stoked by the protracted U.S.-Iran conflict, Threadneedle Street is moving to align with the restrictive postures already adopted by the Federal Reserve and the European Central Bank. “It would have been tough for MPC members to maintain their wait and see stance any longer, especially as the Bank of England is now essentially playing catch up," said Danni Hewson, head of financial analysis at AJ Bell. Stocks largely held on gains, while the sterling was flat.  British-origin Diageo jumped 5% after first quarter revenue exceeded analyst expectations.