European bulletin: central banks turn hawkish, Lamborghini profits fall

European markets faced broad pressure on Thursday as escalating geopolitical tensions in the Middle East rattled investor sentiment, pushed energy prices higher, and complicated the outlook for inflation and monetary policy.

Central banks across Europe signaled increasing caution, Lamborghini's profit declined while HSBC announced layoffs.

European markets slide on geopolitical and inflation fears

European shares tumbled to their lowest level since December, with the pan-European STOXX 600 index closing 2.4% lower at 583.64 points, erasing earlier gains for the week.

The selloff followed warnings from the European Central Bank (ECB) that inflation risks could intensify if the Middle East conflict persists.

Major regional indices in Frankfurt, Madrid, London, Paris, and Milan all dropped more than 2%, reflecting widespread weakness across equities.

Energy stocks were the only sector to post gains, supported by rising oil prices, while miners fell 4.2% and financial stocks also dragged on the broader market.

Investor sentiment was further weighed down by fears of a prolonged conflict after Iran attacked energy facilities in response to Israel’s strike on its South Pars gas field.

Lamborghini profits fall despite record sales

Italian luxury carmaker Lamborghini reported weaker earnings for 2025 despite achieving record revenue, as external pressures weighed on profitability.

Revenue rose 3.3% to 3.2 billion euros, supported by record deliveries of 10,747 units.

However, operating income fell to 768 million euros from 835 million euros a year earlier, with margins declining to 24% from 27%.

US tariffs, currency fluctuations, and costs related to scrapping its planned electric vehicle weighed on results.

The company raised prices but not enough to fully offset tariff impacts.

CEO Stephan Winkelmann said further price increases are unlikely this year, noting that “as we do not think this is something helping the market at this time.”

Lamborghini also confirmed it has canceled plans for a fully electric sports car by 2030 due to weak demand. "Resistance to EVs has increased significantly worldwide in our segment", Winkelmann said. "Many customers have tried EVs, but let's say their experience didn't quite live up to their expectations".

Instead, the company will focus on hybrid models, including the upcoming Lanzador plug-in hybrid.

BoE and ECB signal shift toward tighter policy

The Bank of England (BoE) kept its benchmark interest rate unchanged at 3.75% in a unanimous decision, while signaling a more hawkish stance as energy-driven inflation risks intensify.

Governor Andrew Bailey emphasized caution, stating: “We have held interest rates at 3.75% as we assess how events unfold,” Bailey said. “Whatever happens, our job is make sure inflation gets back to its 2% target.”

The BoE now expects inflation to rise to around 3.5% in the near term, with markets pricing in at least two rate hikes this year. Policymakers highlighted concerns over second-round effects, even as economic growth remains subdued.

Similarly, the ECB held rates steady but warned that rising energy prices could push inflation above its 2% target. "(The war) will have a material impact on near-term inflation through higher energy prices," the ECB said.

The central bank added: "A prolonged disruption in the supply of oil and gas would result in inflation being above, and growth being below, the baseline projections."

Markets now expect more than two rate hikes this year, reflecting a sharp shift from earlier expectations of steady policy.

HSBC pushes layoffs amid AI-driven restructuring

HSBC shares have fallen into correction territory, dropping about 16% from their peak this year as the bank advances restructuring plans and increases its focus on artificial intelligence.

The lender is planning to cut at least 20,000 jobs, primarily in non-client-facing roles, as part of a broader effort to improve efficiency and reduce costs.

Many of these roles are expected to be replaced by AI tools.

Despite the restructuring, HSBC’s underlying business remains relatively strong.

Profit before tax stood at $29.9 billion, while revenue rose to $68.3 billion.

The bank expects continued growth, forecasting a return on tangible equity of 17% and annual revenue growth of around 5% over the next three years.