Volkswagen Boosts European Markets Amid Inflation Fears and Rate Hike Expectations

European shares wrapped up the week in negative territory due to inflation worries and escalating conflict in the Middle East, which pushed crude prices higher. The benchmark STOXX 600 ticked up 0.1% to close at 649.88 points on Friday, but still recorded a weekly decline of 0.8%. A resilient U.S. non-farm payrolls report added to investor concerns over sticky inflation and prolonged central bank tightening.

The prospect of higher U.S. interest rates has put additional pressure on global equities as European economies struggle with sluggish growth and rising energy costs. However, Volkswagen's 5.9% surge to a two-month high provided some support, making it the top performer in Germany's DAX index. The automaker's turnaround plan, agreed upon by its supervisory board, has lifted investor mood.

Market experts believe that next week's U.S. consumer inflation print will give a clearer signal on the Federal Reserve's trajectory. Eric Merlis, managing director and co-head of global markets at Citizens, said that the recent labor market stability reinforces expectations for interest rate hikes in September. Meanwhile, JPMorgan and BNP Paribas predict another 25-basis-point rate hike by the European Central Bank in December.