European stocks post best day in 2-months in post-Fed bid

European equities staged a robust comeback on Thursday as global bourses took heart from the Federal Reserve’s decisive interest rate increase and hints of a potential diplomatic breakthrough in the Middle East, turning their gaze for the next milestone in a high-stakes central bank marathon. 

The pan-European STOXX 600 index gained 0.9%, its strongest advance in over two months, and built on the previous session’s relief rally as trading desks applauded Federal Reserve Chair Kevin Warsh’s resolve to tackle energy-driven price pressures head-on.

Germany’s DAX, France’s CAC 40 and London’s FTSE 100 all rose between 0.6% and 1.2%.  

Rather than recoiling from higher borrowing costs, market participants interpreted the Fed’s first rate hike since mid-2023 as a vital show of institutional independence, reassuring allocators that the central bank remains committed to anchoring inflation expectations rather than buckling under political pressure from the Trump administration.

"Markets absorbed the hike relatively calmly because it was almost fully priced, but the reaction turned more defensive. Investors were responding primarily to the future policy path rather than yesterday’s hike itself," Daniela Hathron, senior market analyst at Capital.com said.  

Sentiment on trading desks gathered additional momentum following fresh signals that the seven-month Middle East conflict could be nearing a critical inflection point.