European Stocks Lack Direction

European stocks were subdued on Monday, with both the STOXX 50 and STOXX 600 trading around the flatline as oil prices rose amid renewed tensions in the Middle East. US forces struck two Iranian missile launchers on Larak Island in the Strait of Hormuz, while Tehran retaliated by attacking US forces in Jordan. Adding to market jitters, President Trump said that Iran’s main oil terminal on Kharg Island was being “blown to smithereens”. The energy sector was among the top performers, with TotalEnergies rising 1.4% and Eni gaining 1.5%. By contrast, Siemens Energy fell nearly 4%, making it the biggest decliner on the STOXX 600. ASML Holding (-1%) and Roche (-0.7%) were also in the red. For August as a whole, however, the STOXX 50 has gained 2%, while the STOXX 600 is up 0.9% so far, after both indices reached record highs in the first half of the month.

European equity markets were set to open lower on Monday, starting the week on a weaker note as hawkish comments from Federal Reserve Chair Kevin Warsh revived expectations for a US interest rate hike next month. In his Jackson Hole address on Friday, Warsh warned that inflation isn’t meaningfully slowing and reaffirmed policymakers’ commitment to returning inflation to their 2% target. Inflation concerns also intensified as oil prices jumped amid renewed tensions in the Middle East, with the US military targeting Iranian rocket launchers over the weekend. In Europe, investors will assess German inflation data for August, along with Turkish Q2 GDP figures and July unemployment data. Meanwhile, there are no major earnings reports scheduled in Europe today. In premarket trading, Euro Stoxx 50 and Stoxx 600 futures were both down around 0.2%.

European stocks closed sharply higher on Friday, recovering from losses in the previous session with support from auto manufacturers, luxury brands, and heavyweight banks. The Euro STOXX 50 gained 1% to 6,492 and the STOXX Europe 600 rose 0.6% to 655, both at their highest in nearly two weeks. Volkswagen, Mercedes-Benz, and BMW jumped between 4% and 3%, ending a volatile week on a positive note as markets continued to assess how the sector is exposed to US tariffs on Mexico and Canada, in addition to benefits from higher industrial profits in China. Strong Chinese economic data also supported luxury brands, with LVMH, Hermes, and Ferrari adding more than 2%. Meanwhile, European banks rose sharply after Fed Chairman Warsh struck a more hawkish tone than previous communication and flattened the global yield curves. BNP Paribas added 2% while UniCredit and BBVA gained 1.5%. Expectations of a rate hike by the ECB were consolidated after the release of higher inflation in France and Spain.