March 23 - European equities slid to a four-month low on Monday as escalating tensions in the Middle East and a jump in oil prices prompted investors to reassess inflation risks and monetary policy expectations.
By 0808 GMT the pan-European STOXX 600 index was down 1.6% at 564.13 points, reversing into negative territory across every sector. The benchmark had already recorded its third straight weekly loss on Friday. Industrials were the heaviest drag on the index as investors reacted to heightened geopolitical risk.
Markets were sent lower after reports that Iran threatened attacks on Israeli power plants and on facilities supplying U.S. bases in the Gulf if U.S. President Donald Trump carries out his threat to "obliterate" Iran’s power network. The prospect of disruption to flows through the Strait of Hormuz - a key route for global oil shipments - has increased worries about supply and inflation.
Europe’s STOXX 600 has underperformed the U.S. S&P 500 during the move, reflecting the region’s greater reliance on oil imports transiting the Strait of Hormuz. The STOXX index has fallen roughly 11% so far this month.
Heightened concerns over a potential closure of the waterway have pushed investors to price in a higher likelihood of monetary tightening by the European Central Bank. Data compiled by LSEG show markets now expect at least two 25-basis-point rate hikes by the ECB this year, a marked shift from expectations of no hikes earlier in the year.
Not all stocks fell. Delivery Hero shares gained 2.8% after the German company agreed to sell its food delivery business in Taiwan to Grab Holdings for $600 million. The move prompted renewed interest in the name among some investors.
The market reaction on Monday highlights how a geopolitical shock that raises energy price risk can quickly filter into inflation expectations and central bank pricing, producing broad-based pressure across equity sectors.
Summary
European equities dropped to a four-month low as Middle East hostilities and a crude oil spike prompted investors to reprice inflation and ECB policy expectations. The STOXX 600 fell 1.6% to 564.13 by 0808 GMT, with industrials hardest hit and the index down about 11% this month. Market moves also reflected threats involving Iran and comments by U.S. President Donald Trump concerning Iran’s power grid, and investors now see at least two 25-basis-point ECB rate hikes this year according to LSEG.