FRANKFURT: European shares fell on Monday as fresh US-Iran military strikes drove oil prices and bond yields higher, though the benchmark STOXX 600 marked its fifth consecutive monthly gain.
The pan-European STOXX 600 was down 0.6 percent at 651.1 points on the day, with trading volumes subdued as London markets were closed for a bank holiday.
Germany’s DAX dropped 1.2 percent, the steepest decline among major regional indexes, after data showed German inflation accelerated in August as the Iran conflict lifted energy prices. However, the increase was smaller than expected and core inflation remained stable.
Investors have largely priced in a September interest rate increase from the European Central Bank.
“The stage looks increasingly set for another rate hike at next week’s ECB meeting,” Carsten Brzeski, global head of macro at ING, said in a note.
“The second rate hike this year would also fall into the category of ‘insurance rate hike’, or maybe more to the ECB’s liking: a rate hike to strengthen the ECB’s credibility and to preempt any possible indirect or even second-round effects from the current energy price shock.”
Euro zone inflation figures and US payrolls data will be in focus later this week.
Germany’s policy-sensitive two-year government bond yield hit its highest level since July 2024, taking cues from US Treasuries after Federal Reserve Chair Kevin Warsh on Friday signalled interest rates may need to rise.
Energy stocks firmed, tracking a more than 2 percent jump in Brent crude, which traded around USD90.5 a barrel. TotalEnergies , Orlen and OMV rose between 1.5 percent and 3.5 percent.
US forces struck two missile launchers on Iran’s Larak Island in the Strait of Hormuz on Sunday, the first known US military action against Iran since late July, prompting Tehran to launch attacks on two US air bases in Jordan, Iranian media reported.