European equities traded lower on Monday as investors reacted to another rise in government bond yields and energy prices following fresh drone attacks in the Gulf region.
By 07:02 GMT, the pan-European Stoxx 600 index had fallen 0.8%, while Germany’s DAX slipped 0.5%. France’s CAC 40 declined 1.1% and the UK’s FTSE 100 eased 0.3%.
Market sentiment weakened after a drone strike targeted a nuclear power facility in the United Arab Emirates, while Saudi Arabia confirmed it had intercepted three drones. U.S. President Donald Trump also urged Iran to move “fast” toward securing a long-term peace agreement, adding pressure to an already fragile ceasefire between Washington and Tehran.
Oil prices continued climbing amid the geopolitical tensions, with Brent crude futures rising 1.4% to trade at $110.75 per barrel.
The increase in energy prices has fueled expectations that a prolonged supply shock could trigger another wave of inflation, potentially forcing central banks to keep interest rates elevated or tighten policy further. As a result, sovereign bond yields moved higher across major global markets, with bond prices falling accordingly.
In Europe, yields on 10-year government bonds in Germany, France, Italy and Spain all advanced. Globally, the yield on the U.S. 10-year Treasury touched its highest level in 15 months, while Japanese bond yields climbed to levels not seen since 1996.
Despite concerns that an extended conflict involving Iran could weaken the global economic outlook, equity markets have so far shown resilience, supported by ongoing enthusiasm surrounding artificial intelligence.
Investor optimism linked to AI spending will face another major test later this week when semiconductor leader NVIDIA (NASDAQ:NVDA) publishes its latest quarterly results.
“We think AI sentiment can lift the market further this year, but the rally is likely to remain fragile until war in Iran is resolved and the rest of the market joins in,” analysts at Capital Economics said in a note on Friday.
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