European stock markets began Monday in negative territory while oil climbed, after a fresh round of strikes between Iran and Israel threatened to upset a fragile U.S.-backed ceasefire in the Middle East.
By 03:03 ET (07:03 GMT), the pan-European Stoxx 600 had dropped 0.9%. Germany's Dax fell 1.3%, the CAC 40 in France slid 0.9%, and the FTSE 100 in France was down 0.4%.
The recent strikes were reported as the first direct attacks between Iran and Israel since a shaky truce took effect in April. Media accounts said the latest confrontation began with an Israeli strike on Beirut, Lebanon. Israel has been engaged with Iran-backed Hezbollah militants in Lebanon, although that conflict had not recently escalated beyond sporadic skirmishes.
According to the reports, Tehran responded with strikes of its own, and Israel then launched a retaliation that its military stated hit targets in central and western Iran. On Monday, Israeli authorities said alarms warning of further waves of attacks from Iran had been sounded and that they had intercepted a ballistic missile launched from Yemen, the Wall Street Journal reported. Iran's Islamic Revolutionary Guard Corps also noted it had struck airbases in southern Israel, the WSJ reported.
Political reactions were mixed. U.S. President Donald Trump said the strikes would not affect the White House's ongoing effort to negotiate a peace deal with Iran. In contrast, an Iranian official told MS NOW that an agreement is "no longer feasible at this stage."
Energy markets reacted swiftly. Brent crude, the global benchmark, jumped 5.1% to $97.81 a barrel. Though still below previous peaks above $100 a barrel, the price remains well above levels seen before the war, stoking concerns that an energy-driven rise in inflation could prompt central banks such as the European Central Bank to raise interest rates.
Those inflation and rate concerns were reflected in fixed income markets. Eurozone government bond yields climbed to multi-week highs, weighing on European equities as traders priced in the possibility of up to three ECB rate increases by the end of the year. As a reminder, yields move inversely to bond prices.
Beyond geopolitics and energy, investors were also contending with renewed skepticism about the sustainability of the artificial intelligence-driven enthusiasm in markets. A notable factor was underwhelming quarterly results last week from chipmaker Broadcom, which contributed to pressure on chip-related stocks.
A robust U.S. jobs report published on Friday further strengthened the argument for eventual rate rises by the Federal Reserve in 2026, adding another macroeconomic input that market participants must weigh.
Early trading saw European chipmaking equities retreat, a move that echoed declines in tech-heavy Asian markets and on Wall Street late last week.
Summary
Renewed strikes between Iran and Israel triggered risk-off trading in European equities and lifted Brent crude prices, while higher eurozone yields and disappointing chipmaker earnings added pressure on markets. Monetary policy expectations were also shifted by a strong U.S. jobs print that reinforced the case for future rate hikes.
Key points
- European benchmarks opened lower Monday, with the Stoxx 600 down 0.9% and major national indices sliding up to 1.3%.
- Brent crude rose 5.1% to $97.81 a barrel, elevating inflation concerns that could influence ECB policy decisions.
- Chip sector weakness after underwhelming Broadcom results and a strong U.S. jobs report weighed on investor appetite for risk assets and raised prospects for Fed tightening in 2026.
Risks and uncertainties
- Escalation of Iran-Israel hostilities could further unsettle energy markets and equities, particularly in energy and defense-related sectors.
- Higher oil prices may feed into inflation, increasing pressure on central banks and potentially prompting additional rate hikes that would affect bond and equity valuations.
- Persistent disappointment in technology and chipmaker earnings could undermine the AI-driven rally and weigh on tech-heavy indices across Europe and Asia.
Note: The article reflects reports and market moves as described in available coverage; certain institutional attributions were reported by the Wall Street Journal and comments from officials were reported by MS NOW.