European markets sank on Friday as renewed fears surrounding the global banking sector collided with rising geopolitical uncertainty, pushing major indexes firmly into the red.
The Stoxx Europe 600 Banks Index dropped 2.8%, leading losses across the continent. The pan-European Stoxx 600 declined 1.5% in early London trade, with the FTSE 100 off 1.5%, France’s CAC 40 down 0.7%, and both Germany’s DAX and Italy’s FTSE MIB losing over 2%.
The sell-off followed a slide in U.S. markets overnight after regional banks and investment firm Jefferies fell sharply, reigniting concerns about bad loans and credit risks. European sentiment quickly soured as investors worried that financial stress could spread across the Atlantic.
The mood was further dampened by reports that U.S. President Donald Trump and Russian President Vladimir Putin plan to meet in Hungary to discuss the Ukraine conflict, triggering renewed uncertainty in defense and energy markets. The Stoxx Europe Aerospace and Defense Index fell 3%, marking one of its steepest single-day drops of 2025.
Spanish banking giant BBVA saw its shares rise 5.7% after formally abandoning its €16.32 billion ($19.1 billion) hostile takeover attempt of Banco Sabadell, which fell 6.1% in response. Analysts said investors welcomed BBVA’s decision to walk away from a costly and uncertain bid.
Elsewhere, Swedish truckmaker Volvo Group reported third-quarter net profit of 11.7 billion Swedish kronor ($1.3 billion), slightly above forecasts but warned of “difficult market conditions” in the Americas. Volvo shares dropped 5.4%, dragging down the industrial sector.
On the macroeconomic front, European Central Bank (ECB) policymakers reiterated that the region’s rate-cutting cycle may be nearing its end, with Governing Council member Martin Kocher telling that the easing phase is “close to an end or at its end.”
Economic data offered little reassurance. The U.K. economy grew just 0.1% in August, signaling stagnant momentum, while the Swiss government cut its 2026 GDP forecast to 0.9%, citing export disruptions linked to Trump’s tariff policies.
Across Asia, markets mirrored the cautious sentiment, though South Korea’s Kospi hit record highs amid optimism over new trade discussions with the U.S., offering a lone bright spot in an otherwise fragile global market.
Analysts warned that the combination of banking stress, trade friction, and diplomatic uncertainty could keep European equities under pressure into next week.
