Euopean Stocks Close Sharply Lower

European stocks closed sharply lower on Monday, retreating from the record highs tested throughout the previous week after war broke through in the Middle East over the weekend. The Eurozone's STOXX 50 sank 2.5% to 5,987 and the pan-European STOXX 600 fell 1.5% to 624. US forces attacked and killed the Iranian Supreme Leader and a group of high-ranking officials, prompting Iran to unleash a series of strikes on Middle Eastern countries with ties to the US, including their energy infrastructure. European benchmark natural gas prices surged as much as 50% and oil rallied, lifting inflation expectations and European yields to put pressure on banks. Santander, BBVA, and Intesa Sanpaolo sank 4%. Consumer discretionary stocks and auto producers also slipped on the outlook of higher inflation and interest rates. Inditex, LVMH, and Hermes dropped over 4%, while BMW and Volkswagen dropped 5%. In turn, defense aviation companies and energy producers rallied.

European stocks began March on a negative note, retreating from record levels touched last week, as escalating tensions with Iran sparked a broad risk-off move across global markets. The STOXX 50 fell nearly 2%, while the STOXX Europe 600 dropped 1.7%, reflecting a widespread equity sell-off. The downturn followed a series of attacks by the US and Israel on Iran, which prompted retaliatory strikes by Tehran against targets in the region, heightening geopolitical uncertainty. All sectors retreated except oil and gas, as the conflict drove energy prices sharply higher. Consumer discretionary, financial, and technology stocks led the declines. Megacaps came under heavy selling pressure, with ASML Holding falling 3.9%, HSBC Holdings sliding 4.9%, and LVMH also dropping 3.9%. In contrast, Shell climbed nearly 5%. Defense stocks were also higher, namely BAE Systems (8.3%), Thales (5.5%), Leonardo (4.3%) and Rheinmetall (3.7%).

European equity markets were set to open sharply lower on Monday as global risk appetite deteriorated following a major escalation in the Middle East conflict. The US and Israel carried out strikes on Iran over the weekend, resulting in the death of Iran’s Supreme Leader, Ayatollah Ali Khamenei, and the effective closure of the Strait of Hormuz. Energy prices surged, adding pressure on Europe as the region moves to secure significant natural gas supplies amid record-low storage levels. Meanwhile, investors will assess retail sales data from Germany, GDP figures from Turkey and Italy, as well as manufacturing PMI reports across the bloc. Data on Friday showed German inflation came in below forecasts in February, while price growth accelerated in France and Spain. Money markets currently assign only about a 30% probability to a rate cut by the European Central Bank by December. In premarket trade, Euro Stoxx 50 and Stoxx 600 futures were down 1.5% and 1.1%, respectively.