European equities edged lower on Monday as investors assessed developments in the Persian Gulf and expectations for an interest-rate increase at the European Central Bank’s policy meeting on Thursday.
The pan-European STOXX 600 fell 0.1%, remaining near multi-week lows. Germany’s DAX and France’s CAC 40 traded within narrow ranges.
Among individual stocks, Novartis (TG:NOT) fell 3.4% after a trial of its cholesterol drug failed to meet its main goal.
Iran plans restricted zone outside Strait of Hormuz
Iranian authorities said they plan to declare a restricted zone outside the Strait of Hormuz in the coming days.
The announcement followed U.S. strikes that disabled three Iranian oil tankers over the weekend. Washington said the action was in response to an Islamic Revolutionary Guard Corps ballistic missile attack targeting two U.S. Navy warships.
Oil prices rose by around 1% on Monday following gains of nearly 10% during the previous week, with Brent crude trading above $90 a barrel.
Approximately 20% of global seaborne oil and gas flows pass through the Strait of Hormuz, putting the waterway in focus as markets assess the potential implications of military activity or transit restrictions for energy supplies.
Markets price in ECB rate increase
Investors are also preparing for the European Central Bank’s monetary policy decision on Thursday.
Money markets were pricing in a 25-basis-point interest-rate increase. Preliminary August data showed headline Eurozone inflation at 3.3%, with energy components rising 14.3%.
European sovereign bond yields remained elevated ahead of the meeting, with Germany’s 10-year Bund yield trading near multi-year highs.
Higher borrowing costs are also being monitored for their potential effect on rate-sensitive sectors, including real estate and construction.
U.S. inflation data in focus ahead of Fed meeting
Markets will also receive U.S. Consumer Price Index data later this week, ahead of the Federal Reserve’s September 15-16 policy meeting.
The inflation report follows U.S. employment data released on Friday showing that 162,000 jobs were added in August.
Investors will use the CPI figures to assess the inflation outlook and expectations for the Federal Reserve’s next interest-rate decision.
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