European Stocks Rebound, but Inflation Worries Persist

European stocks rebounded on Friday, but still ended the week lower due to inflation concerns. The pan-European STOXX 600 index closed 0.59% higher at 654.18 points, despite a robust earnings season and signs of economic resilience in the region.

The European economy is showing growth, with the euro zone business activity increasing at its fastest pace this year thanks to new orders in manufacturing and renewed export growth. However, investors remain wary of reading too much into recent data due to uncertainty over inflation.

Luxury stocks gained 1.4% after rebounding from a sharp decline in the previous session, while basic resources led sectoral gains, rising 2.5% as a softer dollar lifted gold prices. The retailers also advanced 1%, with JD Sports climbing 5.6% after recovering from a 14% drop on Thursday.

The European Central Bank is expected to become increasingly hawkish, while the stalemate between the US and Iran in the Middle East complicates the outlook for inflation. The US Treasury Secretary announced that the US would impose 'the toughest sanctions in history' on Iran, further reducing optimism over a deal to fully reopen the Strait of Hormuz.